Q1 21/22

Aug 16, 2021

Ladies and gentlemen, good day and welcome to the V2 Retail Limited Q1 FY 'twenty two Earnings Conference Call. 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Manju Tandon. Thank you and over to you, sir. Yes. Hi, good afternoon, everyone. A very warm welcome to our Q1 FY 'twenty two earnings conference call. I hope you all are staying safe and healthy towards this through this unusual and challenging times. Along with me, I have Mr. Abhats Agarwal, Old Time Director and CFO 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. So let me start with the key updates. The company opened 1 new store and closed 3 non profitable stores during Q1 FY 2022. As on June 30, 2021, the company operates 90 3 stores spread across 15 states and 81 cities with a total retail area of RMB 9.8 lakh SquareTrade. The company has opened 2 new stores till date In Q2 FY 'twenty two and now we have 95 stores. Same store sales growth for the Q1 stood at 67%. Our targeted store addition for H1 FY 2022 will be delayed. However, we are on track of opening client stores for FY 2022. With our strong customer connect, we have witnessed strong rebound in demand post relaxation of restrictions in Q2 FY 2022. We have seen significant pickup in volume from our online platform, v2card.com as well. With our normal monsoon as so far, We foresee substantial pickup in demand during festival season starting August 21. Now allow me to give you a quick overview on our operational performance during the quarter, standalone performance highlights. So revenue from operations in Q1 stood at INR 82.5 crores as compared to INR 37 crores for Q1 FY 2021. Gross margin stood at 31.7 percent in Q1 FY 'twenty two as compared to 29.7% in last year Q1. EBITDA for Q1 2022 stood at INR10.7 crores as compared to INR7.2 crores for Q1 2021. EBITDA margin stood at 12.9% For Q1 FY22, PAD for Q1 FY22 stood at INR10.2 crores negative as compared to INR8.9 crores negative in Q1 2021. The second wave and the aftermath disrupted our operations across stores in recent months as stores operated for only 45% of Nevertheless, we have been presently encouraged by the rapid recovery in our Customer uptake is starting from the middle of June on easing of pandemic related restrictions, considerably aiding sentiment and improving consumer traction. It is encouraging to note that in recent weeks, over 90% of our stores are operational on most days of the week and local restrictions being increasingly eased. Are witnessing a sharp recovery with July registering revenue recovering well, recovery of 85% vis a vis FY 2020 level and August is even better. So with this, I now leave the floor open for questions. Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Bhavan, an individual investor. Please go ahead. Bhavan, an individual investor, please unmute the line from your side and proceed. Bhavan, your line is unmuted. Please unmute the line from your side and proceed. Hello? Yes, we can hear you. Good afternoon. Just wanted to check with you, were there any specific cost Cutting measures which were undertaken by the company because of which the EBITDA margins were robust? As well as second, how do you see the rent per square feet on a normalized level in the coming three quarters? So yes, during the lockdown period, most of our landlords cooperated with us and they gave us rent concessions for the days that the stores were shut Because of government restrictions. But moving forward, it will normalize back to its old levels, which is around INR 44 per square feet per month. And other than that, were there any other specific cost cutting measures? So all the direct costs were obviously related to the store operations, be it power and fuel and we also Didn't give full salary for a month of May to our employees. So there were cost cutting across all the expenses, But it will normalize now as most of the stores are open on most days. So it should come back to around INR 1.70 to INR 1.75 per square feet. Okay. Thanks. Thank you. The next question is from the line of Himanshu Shah from Daulif Capital. Please go ahead. Thank you, sir. Thanks for the opportunity. Hello. Am I audible? Yes, you're audible. Congratulations on good set of numbers. Sir, A couple of questions. 1, the new store addition target of 10%, is it on a gross basis or on a net basis for the year? Net basis. Net basis. And sir, any further store closures that we are looking for? Or what should be that number for rest of the year? So we closed down 3 stores during quarter 1 and there are no more plans to close down any store as such. So the net addition for the year, it's Around 12 to 15 stores, out of which I think in Q2 also we've opened 2 new stores. Okay. Great. And secondly, sir, there has been an increase in raw material prices, which we have been hearing, probably a sharp increase in raw material Despite that, our gross margin has seen a healthy improvement Both on a Y o Y and Q o Q basis and even compared to pre COVID level. So anything specific over here? What is the rising prices? The rise in prices of the raw material is across industries and it's for everyone. So the customer is bearing a part of that And we have adjusted MRPs of a lot of products because of the rise in the cost. So we are looking to maintain our gross margin From between 30% to 32%. So any increase in raw material prices would lead to a higher MRP. Okay. And what was the overall price increase that we would have passed out to consumers at a portfolio level? Sorry, I can't understand what you're saying. What is the overall price increase that we have taken in our products? So it's very hard to put a number to that because it varies from category to category because cotton yarn had a different rise in prices, Hollister, you are at a different rising prices. But you can say the average cost of raw materials went up by the cost of goods sold for us went up by around 3% to 4%. Okay. And lastly, sir, earlier, we had been guiding for around 20 store additions. We have scaled down that. Is that in back Drop off COVID or on a structural basis, now we would be looking for adding around similar number only, that is around 10 to 12 Stores on a net basis? So we always we tell investors that we are looking to grow at about 20% every year, Out of which 15% is from new store additions. And the initial target itself was around 15 stores, but that has got delayed because of the 2nd wave. I think we'll be able to open net addition of at least 12 to 15 stores this year. Okay, fine. That's it from my side and all the best. Thank you. Thank you. Thank you. The next question is from the line of Amit Purvan from Marathon Capital. Please go ahead. Hi, Akash. I have a couple of questions. One is on the subsidiary, what would be the capacity utilization level which we have reached In the subsidiary? We are using about 70% of the capacity right now. Okay. And What would be our debt level, both at a standalone basis and consolidated basis? The net debt as on end of June is around INR 45 crores. That's a little bit higher as compared to what we had in March, right? Yes. In March, it was INR 35 crores. Okay. Do we see any increase in debt levels going forward? No, because as you see, the sales numbers The sales numbers for the Q1 is low and because of COVID, we had to use more of the debt for our working capital needs Because we didn't want to delay the payments of our vendors and our creditors. So going forward, again, we'll be the net debt would be 0, think towards the end of the year. Okay. And considering most of the stores were closed in Q1, Did we write off some inventory or did we take some additional provision there? We took an extra provision of INR 2.25 crores in Q1. And last year also we had taken an extra provision of about INR 9 crores due to COVID in our inventory. So we are going conservative there, right? Yes. This is in addition to the 1% provision that we take. And How have you seen post the relaxation of lockdown, though Manchurji mentioned that you have already reached 80%, 85% Of the sales volume compared to FY 2020, do we are we seeing any festive related demand picking up Considering that Rakhi is around the corner and all? So it has been very promising And we are very positive because July so July reached 85% and August also is looking promising. I think this Q2 should be a very good quarter and we should reach about 85% of FY 'twenty, Which is a very good number because that is a pre COVID year. So that leads to another question. What would be the EBITDA range for the next 3 quarters, leave up our quarter 1? So I think for the whole year, we are targeting an EBITDA of about INR 20 to INR 25 crores. INR 25 crores. Okay. That's it. If I have any other questions, I'll come back to queue. But that is obviously contingent to the 3rd wave because it all depends on how COVID behaves in our country. Yes, obviously. Thanks a lot for answering my question. I'll come back into the queue. Sure. Thank you. The next question is from the line of Sachin Kacera from Swan Investments. Please go ahead. Yes, good afternoon, gentlemen. I have 2, 3 queries. First was, if you could tell us how why we all know that the season was impacted Because of the 2nd wave. But just for our understanding, how have we done vis a vis competition? If you could give us some sense on that, that could be very helpful. So I would not want to comment on any competitors' performance, but As I told you like 45% of the days our stores were open. So you can extrapolate that number and then calculate it accordingly. But it was an affected quarter. Some stores are only open for a couple of hours a day. So it will be very hard to judge the performance by looking at the Q1 numbers. So I think Q2 will give a clearer picture. But as per our understanding, have you done better than the industry? Yes. According to us, we have done better. We are in terms of per square feet sales, in terms of per square feet gym growth. So I think we have done better than our closest competitors. Sure. Secondly, could you share the inventory levels as of June versus March? The inventory is around INR260 crores. And what was the same number in March? Just for my reference. INR 261 crores. INR 265 crores, sorry. Okay. And because of this lockdown and Obviously, sales being lower. Will we need to make some more further provisions on the inventory? Because I'm sure some of the inventory would have gotten aged Not anticipated at all, for example, end of March quarter. So do you think that we will need to make some extra provisions further for the inventory write down? No. So in the last 12 months, we've already taken an extra provision of about INR 11 crores on top of the 1% provision that we already take. So I think that will be enough and that will cover all the depreciation that is that we have seen because of the restrictions and Stores not being operational. Sure. Sure. And in terms of number of days, is inventory now At the level which you would want to be? Or you think that right now because of the impact of the second wave, Currently, you're running little higher in terms of inventory levels and overgrowth time, you would want to reduce it? So on a normalized sale, we want our inventory to be around 90 to 100 days. So that translates to about INR 220 crores to INR 220 crores of inventory. So that is our target. Sure, Sure. And how are we approaching the coming festive as well as the winter season? Are we going to be quite Yes, because I think what has happened and not specific to V2, but I think across industry, the second was quite unanticipated and everybody had little higher They are preparing for the season and then the wave happened and everybody got affected. So are we going to be approaching the festive and the winter season with much more caution? So because of the sales in July and what we're seeing in August, we have a very positive outlook in our Q3. And I think that should be a very strong quarter for us. And because of the volumes that we deal in, it's very hard for us to procure ready stocks. And 35% of our sales are private labels. So that has a lead time of about 60 to 90 days. So we have to plan in advance and you can say it's a part of what the business is, because COVID is a big contingency and We cannot plan our season because of a 3rd wave prediction. So we are very positive and we are planning our festive season with Full confidence. So I think it should be a good quarter for us. Sure. And just lastly, We have been talking about product differentiation and working on in house designing and also now your scrapyard factory is one of the key differentiators in the next 2, 3 years that will So can you just update us where are we in that journey right now? And is it all going in the right direction and Year of changes as per what you think? Yes. So last year, our own factories contribution was only less than 5% of our total sales. And right now on the current going run rate, we've already reached about 18%. And we want to increase this and go to 50%. So 50% of the goods in our stores will be designed, developed by my in house team. So I think for FY FY 'twenty three, our target is to take it up to almost 50%. Will you go to share some data as to what is the Normal shelf life or the response for the in house labels and in house production visavis what you get it outside in? So we have seen with the data that we have that we have seen that the products that are coming from our home factory, It's selling at least 20% to 25% faster rate. So the stock turnover ratio is much the number of days is much less for our own production goods. So the customers are liking it better and it has a better sell through and it is giving us a higher margin as well. Okay. Thank you, Akash, and all the best. Thank you. Thank you. The next question is from the line of Bhavin, an individual investor, please go ahead. Just wanted to check with you, are you planning to capture any available opportunities in the market So opportunities in terms of acquisitions or anything to capture the next level of growth or you would just want to grow organically Store by store from Vee Mart's own channel itself sorry, Vee2 owned channel itself? We don't have any such plans, but It all depends on the circumstance and the kind of deal that we're getting. So we don't have any such plans, but What I mean to say is when you say you're getting are you looking out aggressively or are you open to looking at opportunities or You're just taking it one step at a time? No, we are taking it one step at a time. So our target is to reach the INR 750 per separate number And we're 20% every year and eventually take that 1st per week pace to about INR 1,000 per square feet and increase our EBITDA percentage. So the target was do it this year, but again, COVID spoiled the party. So the target for FY23 now is INR 750 rupees per square, INR 1,000 crores of sale. And the second question I wanted to check is how is your digital business standing out? What is the outlook which you're looking given the current circumstances and COVID still being around, how are you seeing that business growing up? Which business? The digital business, Online sales? So like we've already had that stance that we don't want to burn money. We just want to have it as a complementary channel and leverage our inventory over that channel. So we did INR 12 crores of sale in Q1, But because our stores were not shut, it was a huge proportion of the overall sales. But going forward, our target is to have our e commerce sales anywhere between 5% to 10%, But without any cash burn. So we are still learning the trade and we're still learning how to manage returns, how to reduce the marketing cost. And so I think moving forward, we want to have e commerce also as a profitable channel. So gradually, we'll build upon that channel. But are you seeing e commerce giving you access to new geographies within India itself or it's Coming from the same pockets which you have currently aggressively present in? So in e commerce, about percent of our sales is from the cities that we're already operational in, so 70% of new geographies and new customers for us. And we have because we have a CRM that the overlap is not much. So whatever customers that we're getting from e commerce are new customers for us. Okay. This is a conscious sign for us. Thank you. That's it. Thanks. Thank you. The next question is from the line of Rajesh Jain from Jananand Research. Please go ahead. Hi, Akash. I have two questions for you. First, would you like to share what will be our EBITDA level for the balance in 9 months? And second, would you like to give guidelines with respect to top line and EBITDA for the next year? Okay. So I think as I said for the whole year we are targeting an EBITDA of about INR25 crores. So So the Q1 EBITDA was negative INR 7.5 percent. So the rest of the 9 months it becomes about INR 50, INR 32 crores Okay, Amitabh. And for next year, we want a per square feet sales of about 7.52 piece per square feet. And we will have an area of about 1,100,000 square feet. So I think if you extrapolate that, it will give you a number of about 1,000 something crores with an EBITDA margin of about 8% to 9%. That is the target for FY23. Okay, good. One more question. Would you let me know like what is your plan for next 3 years, with respect to addition of our stores, what is the plan for that? Every year we want to grow at 20%, out of which 15 will come from new store addition and we are targeting a positive SSG of 5%. So you can say that we will add around 15 to 20 stores every year For the next 3 years. Okay. Thanks. Thanks for my take. Thank you. The next question is from the line of Amit Purwar from Marathon Capital. Please go ahead. Hi, Akash. One thing which Presentation and the website also stresses about the private labels. But I've seen couple of presentation for last few quarters and all. Only 5 private labels have been displayed. So are we working on Additions to our private label? Yes. We already applied for trademark actually. So we are just waiting for that approval before we put it in our presentation on the website. So we have registered about, I think, 6 new brands, private label. And just for my information, Private labels would command a little better margins, right? No. So because private label is basically any Goods that is made in our own brand, but the extra margin would be in the products that are made in our own manufacturing unit. So are we is the private label being manufactured in house or still it is going out? So out of the 40% 35% to 40% private label that we are selling in our stores, 10% to 12% is from our own manufacturing event. Okay. So we plan to increase it further in house, right? The plan is to take the private label contribution to almost 80%, 90%, All of which our own manufacturing and our own developed designs, own product development would be about 40% to 50%. Okay. And one last question on the omni channel sales. What would be the Q1 sales in omni channel? So we haven't started omni channel yet. So I think we will start it in Q2. All the deliveries are being taken care of by the warehouse itself right now. Okay. Yes, I think that's it from my side. Thank you. Thank you. Thank you. As there are no further questions from the participants, would now like to hand the conference over to Mr. Akash Agarwal for closing comments. Thank you everyone for joining the call. We hope to have been able to answer your questions. I hope everyone stays safe. For any further information, I request you to get in touch with Marathon Capital, our Investor Relations Advisors. Thank you. Thank you very much. Ladies and gentlemen, on behalf of Marathon Capital, That concludes this conference. We thank you all for joining us and you may now disconnect your lines.