Ladies and gentlemen, good day, and welcome to Q3 and nine months FY 2022 earnings conference call of V2 Retail Ltd. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantee of future performance and involves risks and uncertainties that are difficult to predict. 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manshu Tandon, CEO. Thank you, and over to you, sir.
Okay, thank you. Hi, good afternoon, everyone. A very warm welcome to our Q2 and FY 2022 earnings conference call. I hope you all are staying safe and healthy through this unusual and challenging times. Along with me, I have Mr. Akash Agarwal, Executive Director; Mr. Gaurav Bansal, our new Finance Head; and our investor relations team. I hope everyone has had an opportunity to look at our results. The presentation and press release have been uploaded on the stock exchanges and our company's website. Let me start with the key updates. The company opened one new store during Q3 FY 2022. As on December 31, the company operates 97 stores spread across 13 states and 84 cities, with a total retail area of 10.23 lakh square feet. Same-store sales growth for the Q3 FY 2022 stood at -3%.
Now allow me to give you an overview on our operational performance during the quarter. First, I'll give you a consolidated performance highlight for Q3 FY 2022. For the quarter, the revenue from operations stood at INR 239 crore, registering a growth of 5% on YoY basis. Gross margin stood at 33.4% for Q3. The stores were operational on average for 98% of the days of the total days for Q3. EBITDA for the quarter stood at INR 41 crore as compared to INR 44 crore in Q3 2021. EBITDA margin stood at 17.1% for Q3 FY 2022 as compared to 19.2% in Q3 FY 2021. PAT for the quarter stood at INR 12.3 crore as compared to INR 14.9 crore in Q3 FY 2021. Now I'll give you performance highlights for nine months FY 2022.
Revenue from operations for nine months stood at INR 471 crore, registering a growth of 35% on YoY basis. Gross margin stood at 33.5% for nine months FY 2022 as compared to 34.4% for nine months FY 2021. EBITDA for nine months FY 2022 stood at INR 70.4 crore as compared to INR 60.6 crore in nine months FY 2021, registering a growth of 16%. EBITDA margin stood at 18% for nine months FY 2022 as compared to 17.4% for nine months FY 2021. PAT for nine months stood at -INR 2.2 crore as compared to -INR 2.6 crore in nine months FY 2021. The quarter witnessed strong demand in the festive season of October and November.
However, demand tapered sharply post December 13 and till January 2022 due to restrictions imposed by various state governments in the wake of third wave of COVID. We are again seeing consumer sentiment returning towards normalcy since beginning of February 2022 as the national infection caseload came down. We are hopeful that the recovery shall be sharper on the onset of festive and wedding season in the coming months. All the stores are now fully operational with the overall store operations stayed at 98% for the quarter. Our customers continue to increasingly leverage the convenience of our digital platforms with the online channels. Our expansion plan on stores is on track. Some delays due to pandemic, we are planning to open additional five to six stores in Q4 FY 2022. Our emphasis on the private label continues, and growth is encouraging.
Health and safety of all our customers and employees are of paramount importance, and all required precautions are being adhered to. We are confident that the business has the expertise and importantly the resilience to weather this crisis. Given the underlying business fundamentals and the balance sheet strength, the company is well poised to embark on a new wave of growth and create value for all stakeholders. With this, I now leave the floor open for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Priyanka Trivedi from Antique Stock Broking. Please go ahead.
Yeah. Thank you for the opportunity. My first question is with regards to the gross margin. The gross margins have contracted on a year-on-year basis. What has led to the contraction as we have been increasing our share of in-house productions? What has led to this decline?
Yeah. If you look at the nine-month number, the gross margin has reduced by about 1%. You know, because there was COVID in April, May and June, we lost a big proportion of our festive days, where there's the wedding season. We didn't want to carry over that mentally to FY 2023. We had put in extra discount, so to liquidate the inventory.
It is because of extra discounting and also because of the slowdown post fifteenth of December, we had put early discounts on winter wear and pre-winter garments as well, because we wanted to liquidate inventory and you know, go into the new season with as much less carry forward inventory as possible. These two things contributed to a 1% contraction in the gross margin.
Has there been any impact of input price inflation on our gross margin, or have you taken any price hikes?
Yes, there has been pressure and raw material prices have constantly been increasing. We have transferred most of that increase to the customer itself, and that is why we are looking forward to maintaining our gross margin at 32% going forward. Whatever increase in the raw materials and input prices will be transferred to the customer and lead to higher prices.
Okay, got it. My second question is on our store additions for the quarter. We have added one store, while if we look at the other peers, they have been aggressively adding their stores, especially in this quarter. What has been the reason for just adding one store? Because we have been very aggressive on our outlook for the stores.
We did not want to delay our vendor payments and our cash flow because of COVID in the summer. It didn't allow us to expand, you know, as much as we wanted. We delayed the expansion plan. Now we're back on track, and hopefully COVID is over. We are adding about five to six stores in this current quarter. Going forward next year we'll add about 25-30 stores.
Okay, got it. Lastly on, if you could just give us a sense on, you know, how has the recovery been in urban versus rural? Just lastly on that commentary, that's it from my side.
October and November was very encouraging for us and you know we were seeing positive SSG from pre-COVID levels. The second half of December actually when it was very poor. I think it was also because the winter wasn't you know cold enough in December and the onset of winter was pretty delayed this year. I think that is why the quarter from pre-COVID levels was about - 3%. It was very encouraging and I think Omicron has just given a free booster shot to most of the people. I feel we are very positive going forward and because there's a lot of pent-up demand as people have not been freely going out for the last two years.
I feel next year will be, you know, one of the best years in the last two, three, four years.
Okay. Yeah. Thank you.
Thank you. The next question is from the line of Deepak Poddar, an individual investor. Please go ahead.
Hi, Akash. First of all, congratulations on good set of numbers. I have few questions. First is on the CapEx. So what's the CapEx for first nine months and full year CapEx look like? Also for FY 2023?
Yeah. As you know, we opened only three stores this year, so there wasn't much of CapEx requirement because the CapEx requirement per store is about INR 1.1 crore-INR 1.2 crore. When you talk about FY 2023, we are planning to open about 25 new stores. The CapEx requirement will be anywhere between INR 30 crore-INR 35 crore.
How are we planning to fund that CapEx?
We will be generating an EBITDA of about INR 80 crore-INR 90 crore next year. It will be funded by internal accruals.
No, no debt required. Correct?
No debt required.
Since we are planning to open 20-25 stores next year, my question is, how much time does a new store take to break even?
You know, we have had a very mixed bag in that because, a lot of stores took about one year to mature and reach its peak levels. A lot of stores took two years to reach its peak. If you talk about operational break even, then the store starts breaking even from the first month of operations itself.
Okay. What would be the breakeven level then?
The operating expense of a store is anywhere between INR 120-INR 130 per sq ft. The break even level is about INR 400 per sq ft of sales.
Okay.
I'm talking about breaking even at the store level without any, head office costs.
Okay.
If you add the HO costs, the breakeven level increases to about INR 500 per sq ft.
INR 500 per sq ft. Okay. A follow-on question on the expansion. Which geographies are we planning to expand?
We have already signed most of the retailers, and they are already in. They are mostly in the clusters that we're already operating in because you know we want to take the benefit in terms of transportation, marketing. We are you know opening new stores and finalizing new stores in regions where we feel that we have a strong brand presence in and historically where you know older stores have done well.
Okay. On the e-commerce expansion, what was the e-commerce sales for first nine months? What would be your guidance for FY 2022 full year and 2023?
Yeah. The e-commerce sales was INR 21 crore for the nine months. It was about 4% of our total sales. For next year, we are targeting sales of about INR 50 crore from e-commerce. Right now, what we are trying to do is start online channel. We are investing in technology that will enable us to deliver from store. That testing is going on, so I think that will further reduce the logistic costs for us. As it's going forward, the target is to maintain 4%-5% of sales, a good sales mix from the online channel.
4%-5%, as you mentioned, INR 50 crore. Traditionally, this e-commerce business requires cash burn. What is the competitive edge we have? Have you burned cash till nine months?
You know, then on the sale of INR 21 crore, you can say the cash burn was only INR 50 lakh.
Okay.
Because most of our e-commerce cost is variable cost.
Okay.
That most of it goes into logistics and marketing. that is why we don't wanna burn a lot of cash. That is why we are, you know, gradually understanding this new channel because it's a new, you know, environment for us. we are trying to understand how to increase the marketing, the returns, ROAS, and how to reduce, RTO, how to reduce customer returns, and how to optimize inventory, how to optimize logistics, how to, you know, get faster delivery for the customer. we are working on all those things and, you know, investing in, AI technology and, tying up with third parties to understand, you know, the data better.
I think there won't be any significant cash burn even to achieve that INR 50 crores, because as I said, most of it is variable. The only investment will go into technology, so that would be about INR 1 crore-INR 2 crores from e-commerce.
Thank you, sir, Akash, for answering my questions. If I have any more queries, I'll join back with you. Thank you.
Thanks a lot.
Thank you. The next question is from the line of V.P. Rajesh from Banyan Capital. Please go ahead.
Yeah. Hi, Akash. Good to speak with you again. First question is, you know, what is your guidance for fiscal year 2023, assuming it's a normal year without any COVID-related disruptions?
Yeah. We plan to open about 2 lakh sq ft new area in FY 2023. From existing stores we have about 1.1 million sq ft already. We close the year at around 1.3 million sq ft, and we're targeting a cross-category sale of about INR 725 per sq ft with a gross margin of 32%. The expenses that we are forecasting is about INR 170 per sq ft. If you know, calculate it comes to around INR 1,050 crores of turnover, sales turnover, with an EBITDA of about INR 85 crores. That is our target for next year.
Okay. My second question is, in terms of debt, what is the current position, and what will it utilize by the end of this year?
Currently the debt is around, I think, INR 47-INR 48 crores. I think going forward, by the end of next year it'll reduce to about, INR 25-INR 50 crores.
By the end of this year?
By the end of next year.
You're saying next year. Okay. Okay. In terms of inventory, so are we totally current on our inventory or is there still some old inventory that needs to be either marked down or discounted and sold?
We've already liquidated most of the inventory. That is why you're seeing a lower gross margin. We've taken some extra provisions because of COVID. All those provisions have already been taken, and I don't think any extra write-offs or provisions need to be taken now.
Okay. In terms of the competitive intensity, if you can give some color about, you know, what's happening to some of the other regional players or some other players in your market, that would be really helpful.
Yeah. There is definitely increased competition from the national players, you know, like Reliance and Max and Tata. They are expanding aggressively. There has been less competitive intensity from the regional players. Like I said, you know, I think the consumption will keep increasing and the rural middle class will keep expanding. I think there'll be space for at least four, five very good strong players. I think it's all about who gets it right in the next few years.
Mm-hmm. When you compare your SSG from Q3, I don't know if you have done this, but how does it compare to, let's say, you know, the website guys, I mean. I'm sorry, I'm forgetting the name of the competitive brand. With respect to V-Mart.
I wouldn't want to comment on any other company's numbers, but our SSG, I think it's at par with the industry average, and I think it's very encouraging that it's the SSG was - 3 from pre-COVID levels. That too, it was because of December. I think we can easily get a positive single digit SSG from to pre-COVID levels in FY 2023.
Okay, great. Thank you so much, and all the best.
Thank you.
Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi. Thanks for the opportunity. My question is an extension of the point that you made on while answering the earlier question. See, it's always we feel that there's a long demand in market and when NuScale expand the market or demand in general. Now the influx of competition has been huge in terms of we were battling with all the regional competitors for a while, and now suddenly we have all the national players, as you rightly said, they are very aggressive, and they are getting into even INR 3 lakh or sub INR 3 lakh population towns as well. Two questions here. First, what is the value proposition they bring as a product or as an experience to the table versus ours?
What is our right to win that the consumer still continues to prefer us over the national brands which are leaning so much on brand and retail experience?
Yeah. To answer your first question, the national players that you're talking about, for example, Reliance Trends, their ASP is above INR 500. Even if you talk about Max, their ASP is about INR 450. We feel that, you know, with an ASP of about INR 290, we cater to a different class of customer. You know, there's a very slight overlap between a Reliance Trends customer or a V2 customer. I feel like I said, if we make our niche and if we are able to target that class of customer, then there is space for, you know, like two to five-foot players at least in the value proposition.
Because still there's a huge vacuum in terms of value retailing in India, and still the organized retailing contribution is negligible, and most of it is mom-and-pop stores and unorganized retail. That share will keep decreasing and people will start coming to, you know, I mean, organized players will start getting those, that chunk of the pie. I feel if we are strong enough and if we focus on our assortment and product development, it's all about the product offering by the end of it. I feel like the product and the pricing will be our biggest USP, differentiating ourselves from everyone.
You spoke about Max and Reliance, but if we say Zudio is almost competing at almost similar price point that we offer, right?
Yeah. Zudio.
Sure.
Store size is only 5,000 sq ft-6,000 sq ft. Our average store size is 12,000 sq ft. With Zudio, I can definitely provide double the number of options to my customer. If I'm able to, you know, provide more number of options you know at a better pricing or a better product assortment, then, like, I feel like we can do much better numbers.
Sure. That's all from my side. Thanks a lot.
Thank you. The next question is from the line of Ankit Babel from Subhkam. Please go ahead.
Yeah, good afternoon, Akash. I have a few questions from my side. First one, what was the figure of the operating days in Q3? I missed that number.
98%.
98%. Okay. What was the share of own manufacturing in Q3, and what are your plans to take this to the upcoming festive or the wedding season in Q1?
In Q3, the contribution was about 15%, and the plan is to take it to about 35% in FY 2023.
35% in FY 2023. Okay. What kind of impact can it have on your gross margins?
It is definitely giving us benefit in terms of costing. You know, going forward, like I said, we want to target a gross margin of 32% consolidated. Because of, you know, higher input prices, we might, you know, pass half the impact to the customer and absorb half the impact. It'll set off with the saving that we are getting from the factory. Because we want to focus more on, you know, being competitive, having that competitive advantage rather than having a higher gross margin. That, getting a higher gross margin is not the focus, getting a higher PSF and, you know, turning over the stock more times, that is the target.
Okay. What was the inventory level at the end of Q3 at consolidated level, and what was it last year corresponding period?
One second. For Q3, it's about INR 270 crore consolidated, and for V2 Retail, it's about INR 248 crore. Last year numbers I'll have to check, but we have been able to reduce inventory from the last quarter. I think we've reduced it by INR 40-odd crore. Going forward, we want to target our inventory days of about 90 days. If we have a sale of INR 725 per sq ft, it translates to about INR 2,100 per sq ft of stock.
Okay. One second. You're targeting that on INR 1,000 crore revenue at 90 days, it comes to around INR 250 crore of inventory. You believe that you'll do a revenue of INR 1,000 crore with the same absolute amount of inventory which you currently have?
Yes. That is why for the additional area also, we don't need additional working capital for the inventory. We're gonna rationalize this existing inventory level and operate an additional 200,000 sq ft of store.
Can you give us some idea how you are going to achieve this? What efforts you are taking or what will lead to such kind of reduction in number of days and keeping the inventory at the same level?
One of the things that we've done is we've reduced density at few of our slow-moving stores. We have rationalized the display inventory that was there at all our stores. That has reduced from about INR 800 per sq ft to about INR 670 per sq ft. That is the first thing that we have done. Second, that we're doing is we've increased the frequency of deliveries to our stores. The replenishment cycle has changed, that has enabled us to maintain, you know, lesser number of days at the store. These are the two biggest changes that we have done.
I think we've already seen the result and, you know, we've reduced the inventory in Q3 and we're further down the line. We'll be able to achieve INR 2,100 per sq ft of inventory.
Reducing the density, can it have an impact on your PSF?
Till now we haven't had seen a negative impact because what it essentially does is increases the freshness index of the store because whenever a new customer comes in, he should see more fresh stock. We saw that, we did not have any negative impact on sales.
Okay. That's it. Thank you.
Thanks.
Thank you. The next question is from the line of Sagar Parekh from Deep Financial Consultants. Please go ahead.
Yeah. Hi, thanks for taking my question. Actually my question was, just going by, Ankit's question on the gross margins and, you know, our scale up of our own production, the business model that we're trying to, you know, achieve. Just curious to know that, you know, if you're expecting your sales per square feet to go up significantly, once you have, your own production, then why would you just, you know, expect about INR 700-INR 725 sales per square feet? Because that was, I believe, the number which we have done, I think pre-COVID also, right? Either the sales per square feet have to significantly move up or your gross margins have to significantly move up.
Because if you do your own model and your SS sales per square feet does not go up, then it doesn't make sense or your gross margins have to go up. Either of the two has to go up.
Yeah, Sagar, that's very rightly said. Like I said, you know, the production is a very gradual business to actually get the fruits of. Product development, we started about 1.5 to 2 years back. You know, there were a lot of learnings and there were a lot of lessons learned. When we give a forecast to investors, we always give a conservative plan. Of course, we have a very aggressive internal plan as well, where if our production you know does like it's efficient and does at par and what we actually you know foresaw when we started production, then we would easily achieve INR 800 per sq ft. Right now the target is INR 725 per sq ft with a gross margin of 32%-33%.
The extra benefit that we are getting from production, like I said, because we wanna kill the competition, because we wanna get more market share, because we wanna gain that competitive edge, we want to pass on that benefit to the consumer. Because if the consumer feels he's getting the same product at V2 at a cheaper price, because V2 has been able to get a cheaper costing on it because of own manufacturing, then I want to get that customer into my store. I think it's all about gaining a market share for the next two, three, four years, getting a good foothold in the market rather than getting a high gross margin.
Once we feel that our brand is established and, you know, people know, people connect with our private label, then would be the time, right time to actually, you know, make it a cash cow and increase the gross margins.
I get that. Still, I mean, in terms of, I think the difference between our own production and, you know, third-party purchase was about, I think 8%-10%. Even if you take like 4%-5% absorption or 4%-5% price pass-through to the customers and, you know, you take the benefit of the half of it, still, I think we used to do 32%-33% gross margin in the past. We used to do INR 700-INR 725 rupees sales per square feet. We are coming back to the same kind of numbers that we spoke about I think two years back. It's just not adding up.
You can say that because of the competitive intensity earlier on our EBITDA target used to be 10%, 11%, 12%.
Correct.
That target has gone down to about 8%. I think that should answer your question, because right now a lot of new players are also coming in the market. The market environment is not same as before. Right now the conservative target is to target an EBITDA of about 8%. Of course, like I said, it's the product that we are manufacturing. If it's implemented well, then it can easily increase the EBITDA from 8% to 10%, 11%. We don't want to go give those kind of numbers to investors until we feel ourselves that, you know, we, the product development and the manufacturing of new products are proving themselves and we actually foresee it. I think it's too early to make that call.
We need to give manufacturing at least one more year to actually see what kind of results it's getting us.
Going forward, where do you see the own manufacturing business you know settling down at 50%-55% or in two to three years it can directly go to about 100%? Because I believe I think in the last call or the call before that you had mentioned that this is just like a you know setting an example to other vendors to you know set up their own shop and you know do it at something like that you had mentioned if I remember it correctly.
If we increase the turnover, the manufacturing percentage will keep going down because we don't plan to open more manufacturing units.
Okay.
We have contract manufacturing and we have a manufacturing partner that will only exclusively work with us. You can call them manufacturing franchisees. The idea behind having our own manufacturing unit was to you know ascertain the efficiency when negotiating with those kind of vendors, so that we can show them that, "See, we are able to achieve this costing. So, and, you know, that is the contract we wanna work with you on." That was the whole idea behind it. The manufacturing percentage won't go up going forward. Only this year it'll go up because obviously the efficiency was low last year and we plan to increase that efficiency. Increasing that efficiency will increase the production.
Going forward, the target is to have 100% private label selling in our stores, but the production contribution will keep coming down every year.
Sure. By when do you think this 100% private label contribution would be reached? Would it be possible in FY 2024 or it'll take beyond that?
I think it should take another three to four years.
Three to four years.
We have reached about 50%. Gradually, I think for FY 2023, the target would be about 60%-70%. But there are a lot of categories that we have still not, you know, had private labels developed yet. By, I think the next three to four years, we can be above 90% private label, yes, sir.
Okay, sure. That's it, Akash, from my side, and all the best.
Thanks.
Yeah.
Thank you. The next question is from the line of Pankaj Pant, an individual investor. Please go ahead.
Akash, good morning. I just want to bring an incident to you. Am I audible?
Yes, sir, I can hear you.
Okay. Sometime back, we heard that you have opened a store in Dehradun, and I was very keen to visit it. I checked with Google Maps. You were not to be traced. I checked with Facebook. It said, yes, you have opened one in Dehradun. But I had no intimation, you know, like no address, no phone number, nothing. I sent a query also, nobody responded. I tried calling Haridwar, Roorkee, but those numbers were not working. What I'm trying to say is the presence was not clear you are there. Eventually, I visited. After a couple of weeks, I was able to get the address. It's a nice place, you know, quite big by Dehradun standard. V-Mart is already here with four, five showrooms. Probably maybe more, because I can count four as I speak to you.
I understand that you are trying to fight. V-Mart is one of the competitors, and you have made a presence in Dehradun, but the visibility is not there. Considering social media is very competitive, you know. That presence should be marked, and I think that is the cheapest mode of promotion. Just wanted to bring it to your notice.
Oh, thank you, sir. The point is well taken. We do have a Google business account, and we do tag all our stores on the Google Maps. I'll definitely take it up with my team and see where there was a lapse and correct it as soon as possible.
Yeah. Just wanted to bring it to your notice because I don't know about other stores in other cities, but in Dehradun I was not able to find it for a couple of weeks. Considering I think it is a good market with competitors, with their four to five stores or maybe more.
Yes.
Probably I think it's the cheapest mode of publicity, you know, your sales team or someone can just do.
Because we do a lot of digital marketing, you know, hyperlocally in a radius of about 15 km from our store. To enable that, we do have to put the location of our store on Google and Facebook. I'll definitely check why you couldn't find the store and I'll correct it as soon as possible.
The new kind of products which you keep coming out, like the reason you gave just now, [Foreign language] you have disposed of the inventory and you plan to have new inventory for the wedding season. Probably the sales team or the marketing team, they can flash the new design into Facebook page and other media, and probably they may translate into sales and it won't cost much. Yeah, that will be all.
Thank you.
Yeah. Thank you so much.
Thank you. The next question is from the line of Bhavin, an individual investor. Please go ahead.
Hi, Akash.
Hi, Bhavin.
Akash, it's kind of a repetitive question, but much more focused on Q3. Given the fact that the trend always suggests that Q3 happens to be the best quarter, right? Just wanted to know what led to subdued margin profile for Q3, because surprising given the fact that you've clocked in terms of revenue, there's been a growth, but margins have taken a hit, especially in the best quarter, which has been the trend all throughout.
Like I already said, because of you know, the lockdown for three months during the summer, we had a lot of pile up of festive wear, which we knew that will not sell at full price in the next wedding season. We took a decision to liquidate it because we wanted to enter FY 2023 wedding season with as much fresh inventory as we could. It was a conscious call and we knew it would lead to low margins.
One reason was that, and the second was because you know, the average temperatures being very high in the regions that we operate in during December. We saw that you know, the footfalls and everything was very affected, and we saw a huge degrowth towards the second half of December. We decided to put early discounting on pre-winter and winter goods because again, like, because it will be very hard to sell that goods in the next year, pre-winter, winter. I think these two are the biggest reasons that it came down. If you look at the nine-month number, it's just a gross margin reduction of 1%.
Right. Does it affect means when I consolidate and when I probably calculate the yearly numbers, put together, will it affect the yearly margin profile, if someone needs to project it as well?
No, I think going forward, like I said, the margin will be maintained by at least 32%, so there will not be any anomaly, you know, hoping that it's a COVID-free next year. I think going forward, minimum gross margin will be maintained, yearly gross margin of 32%.
If I consider Q4 performance, I mean, obviously it's just been one month and one and a half month. Has there been any impact for the third wave in this particular quarter especially?
Yeah. Most of our stores are in VR, and VR was the most affected in terms of restrictions and lockdowns. Most of our stores were affected in January. Now, thank you know, thank you to the government for realizing that lockdown and restrictions were not the answer. With the cases coming down, most of the restrictions have been lifted now. In February we are seeing the customers coming back to the stores, and I think we'll come back to pre-COVID levels once the festive season kicks in. For FY 2023, we are looking at a positive single digit SSG from 2019 levels, pre-COVID levels.
In terms of the Q4 especially, how would you see the impact majorly in terms of if I need to put a number to it?
I think in Q4 last year we had a loss of INR 10 crore. I think the numbers should be better than last year.
Okay. That's it for me. Thank you so much.
Thank you. The next question is from the line of Apurva Mehta from A M Investments. Please go ahead.
Sir, we are seeing a lot of people having bigger stores.
Sorry, I'm not able to understand.
Yeah, yeah. Hello? Yeah, is it clear?
Yeah, better.
Yeah. We are seeing lot of people, you know, having bigger stores, from what traditionally we had around 10,000 sq ft store. We are seeing people now expanding to, you know, 12,000 sq ft-15,000 sq ft kind of store to get better revenue. What is your thought on that in our store size?
I think, you know, the store size has a lot to do with what location it's located in.
Okay.
What kind of a customer, you know, density that area has?
Mm-hmm.
One of my stores is 30,000 sq ft. It's still doing much better than the national average in terms of per square feet sales.
Mm-hmm.
I don't think store size determines the performance of the store.
Mm-hmm.
It has a lot of other external factors that needs to be decided in terms of store size. One benefit of having a standard store size is when you're doing your assortment planning. It really helps in getting the purchase plan for all the articles. Otherwise, the location, kind of customers it caters to, the population density and the frontage, those kind of things will determine what size your store should be.
On the branding side, what will be our, you know, goal for next two, three years kind of? Are you increasingly trying to spend on the brand because competition is hotting up? Are you trying to, you know, is it viable to spend on the branding and create some brands for ourselves or no?
We feel, you know, the product is the biggest brand ambassador for us.
Okay.
That is what we are investing most on.
Okay.
Because, you know, if you talk about Uniqlo, if you talk about Primark, it's their product that sells. It's not.
Mm-hmm.
Even if you talk about Zara.
Mm-hmm.
They don't spend on marketing.
Mm-hmm.
I feel we wanna strengthen our product first and, you know, that will give us the biggest advantage more than any marketing or branding campaign.
Okay.
Of course.
Yes.
To get the customers into the store and just see the assortment that we have.
Post-COVID, how are we seeing on the rental side? Are they softening or they are back to pre-COVID? Or sorry.
All the concessions that we got because of COVID, I think they're over and the rentals are back to pre-COVID levels. I think our rentals are about INR 44 per sq ft, and going forward it's gonna stay at the same level.
For the new stores which we are opening, like 25 stores this year, I think, will be? Okay. Any thing on the cost structure we can tweak, still we have some gap to do or anything which we can help us for, you know, long run to improve our margins?
I think we are at industry best in terms of per square feet cost because even in this quarter, the per square feet cost was about INR 168 per sq ft. I don't think there's a margin there to further reduce costs without having a negative impact on sales. I think even with this cost structure, we can get the EBITDA margins that we are looking forward.
Okay. Yeah. Thanks a lot, and yeah, I wish you all the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Ankit Babel from Subhkam. Please go ahead.
Akash, just a follow-up. In case if we don't achieve our desired level of PSF of say INR 725, are there any levers to maintain your EBITDA margins? If yes, what are those?
No, like I said, you know, the cost is already consolidated and already saturated in terms of there's no margin to further reduce costs. I don't think if we are not able to achieve the PSF of INR 725. You know, we'll have to take decision quarter to quarter. If we see in the first two quarters we're not able to achieve that sales number, then maybe we'll take a decision to pass on less of the benefit to the customer and increase the gross margin of 1% or 2%. Like I said, right now the plan is to get a gross margin of 22% and a PSF of INR 725.
Like we always do a monthly review, where we see the budgeted numbers versus actual numbers, and then the decision can be taken and implemented.
Any such.
We can achieve the-
Any such move of retaining the profitability will make you more uncompetitive, right? Because, I mean, if you pass it on, pass on the benefit, you become more competitive, and if you retain it, you become less.
I wouldn't say if you become less competitive, but we come at par. Like if we increase the price and don't pass the benefit to the customer, then the price comes at par with our competitors. We don't gain any competitive advantage, but we can increase the gross margins.
Okay.
That's a hypothetical scenario.
Okay.
It will be done when we review what kind of performance we do in Q1 of FY 2023.
Okay. I again missed that number of cost per square feet. What is it? INR 160 or INR 170?
It was 168 in this quarter, but going forward it remains at INR 170.
INR 170 we should model for FY 2023, right?
Yes.
Okay. What is the share of private labels now in your portfolio, and where do you see it going forward?
It's about 45% right now. Because of COVID, we didn't plan a lot of winter wear, so that's why we couldn't increase the private label margin contribution. Going forward, I see it at about 65%-70% for FY 2023.
For the year as a whole.
About 90%.
Three to four years, 90%. Okay.
Mm.
Okay. Any further investments required in your own manufacturing?
No. The only CapEx requirement is in technology, but that's not for manufacturing. I'm just talking about the company. The CapEx requirement will be for the new stores that we wanna open next year. It'll be about INR 2-INR 3 crore in the supply chain, the warehouse for automation, and about INR 5 crore in technology.
Your current manufacturing capacities can take care of what part of revenue?
About 30%-35% for FY 2023 numbers.
Okay. Beyond that, expansion would be required, right?
Like I said, we don't want to expand more into more manufacturing units. Beyond that, it will all be done by, you know, job workers, the contract manufacturers. We have a lot of units that wanna work with us. The only problem was the costing, but now we can show them the actual costing that they're getting in our factory. Even if we give them a return of 12%, they are willing to work with me. It's all about efficiency. Even till now we have only achieved an efficiency of 60% of the manufacturing. The target is to achieve 70%. That will further reduce the cost by 3%.
What do you mean by efficiency? Is it the capacity utilization you're seeing or what?
The efficiency is basically in manufacturing, there's a standard minutes that every garment takes to make. For example, a T-shirt takes about six minutes to make. If your factory is making it at 12 minutes, then your efficiency is 50%. Like factories in Bangladesh, they achieve almost 75%-80% efficiency. It's basically the minutes that you are achieving for making that product versus the ideal number of minutes it should take.
Okay. Lastly on your creditor days, how are they shaping up? What are your targets there? Creditor days, payables.
Yeah. Average credit days for us is about 60 days, and going forward it's gonna stay the same.
60 days. A 90-day inventory and a 60-day creditors.
Yes. 60-day working capital cycle.
This is on a consolidated basis, including the inventory which you keep for your own manufacturing.
The 20 target of 90 days is for V2 Retail only, standalone. If you add that, I think it will increase to about 95 days.
Okay, because earlier I remember, you know, because of your own manufacturing, your creditor days used to come down because you are no longer getting credit on your own manufacturing. Considering that, what will be your net working capital cycle?
Like I said, the working capital has already been deployed in V2 Smart in the subsidiary, so there will not be any additional requirement. I wasn't including that working capital when we spoke about 90-day working capital cycle.
No, you still get the 60 credit days in spite of increasing shares of manufacturing.
Yes. A lot of vendors are at 90 days, so the average comes out to about 50-60 days, even if you include the cash payment done to V2 Smart.
Okay. Yeah. That's it. Thank you so much.
Thank you.
Thank you. The next question is from the line of Rajesh Jain from Jinanand Research. Please go ahead.
Hi, Akash. Thank you for the opportunity and congratulations for the good set of numbers. My first question is related to rent cost. Did you pay full rent during this third wave lockdown, or is there any reduction? Second question is related to the sales mix. Can you explain like what are the shares of ladies, men, kids and other general merchandise?
First talking about rent, because 98% of the stores were operational during this period, we did not have any rent concessions in Q3. The rent concession was only during the lockdown, which happened in April, May and June.
Mm-hmm.
About the sales mix, the men's category contributes about 42% for us, and ladies and kids contributes 25% each, and general merchandise contributes 7%.
Okay. Thank you. All the best.
Thanks.
Thank you. The next question is from the line of Pulkit Dharmawat from Wealthsure Advisory. Please go ahead.
Yeah. Good afternoon, and thank you for giving me the opportunity. The question that I would ask is what is the average selling price and average bill value?
Are you talking about nine months, or are you talking about the third quarter?
The third quarter and nine months as well.
Okay. For the third quarter, the average selling price was INR 341, and the average bill value was INR 870.
Okay.
For the nine months, the ASP was INR 296, and the average bill value was INR 800.
Okay, thank you. The other question that I would like to ask is what is the regional mix in the total sales?
The regional mix is. The East contributes 54% of our sales, North contributes 30% of our sales, and South contributes 16% of our sales.
Okay. Thank you so much. Thank you.
Thanks.
Thank you. The next question is from the line of Deepak Poddar, an Individual Investor. Please go ahead.
Yeah. Hi, Akash. You mentioned that inventory level is 90 days and creditor 60 days. This is for Q3 FY 2022, or this is what you want to achieve going forward?
This is what we want to achieve. Right now I think the paid stock is more than what we want in our books, but I was talking about the target numbers.
Okay. What is the current inventory number? Absolute number.
INR 245 crores-INR 248 crores.
How much of that would be winter wear? Obviously, going back to your one of the answers that most of the areas wherein you are located were under lockdown and that coincides with the winter season. Is there any inventory currently now which we are carrying on from the winter part of it?
It's insignificant. I think, winter wear inventory, leftover inventory is less than last year because, like I said, we put early discounts this year, and that had a negative impact on our margin, but we were able to liquidate, most of the winter wear and pre-winter inventory.
Okay. You mentioned 240. What is the thought process, or what is the steps which we are taking to reduce those inventory levels, overall inventory levels?
Like I said, we want to maintain these levels, but we'll be able to operate 200,000 additional square feet area with the same inventory levels. That is the target. We are opening five to six stores in this quarter itself, and then we'll open about 25 stores next year. We've been leveraging the same inventory.
Okay. Any additional provision, inventory provision which we would have taken this quarter, like we were taking in earlier lockdown?
Yes, we took an extra provision this quarter also, like, because there was another lockdown in the summer and for our old aging inventory, we took an extra provision, and I think no further provision will be required and everything has already been accounted for.
Okay. That's it from my side. All the best.
Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Akash Agarwal for closing comments.
Thank you everyone for joining on the call. We hope we've been able to answer your query. Stay safe. For any further information, we request you to get in touch with Marathon Capital, our investor relations advisor. Thank you, and have a nice day.
Thank you. On behalf of V2 Retail Ltd, that concludes this conference. Thank you for joining us, and you can now disconnect your lines.