Ladies and gentlemen, good day, and welcome to the V2 Retail Ltd Q1 FY 2022 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manshu Tandon. Thank you, and over to you, sir.
Yeah. Hi. Good afternoon, everyone. A very warm welcome to our Q1 FY 2022 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. Akash Agarwal, Whole 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. Let me start with the key updates. The company opened one new store and closed three non-profitable stores during Q1 FY22. As on June 30, 2021, the company operates 23 stores spread across 15 states and 81 cities with a total retail area of 9.8 lakh sq ft.
The company has opened two new stores till date in Q2 FY 2022. 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 planned 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, v2kart.com as well. With above 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. Revenue from operations in Q1 stood at INR 82.5 crores as compared to INR 37 crore for Q1 FY 2021.
Gross margins stood at 31.7% in Q1 FY 2022 as compared to 29.7% in last year Q1. EBITDA for Q1 2022 stood at INR 10.7 crore as compared to INR 7.2 crore for Q1 2021. EBITDA margin stood at 12.9% for Q1 FY 2022. PAT for Q1 FY 2022 stood at -INR 10.2 crore as compared to - INR 8.9 crore in Q1 2021. The second wave and the aftermath disrupted our operations across stores in recent months. Our stores operated for only 45% of the trading days in Q1 FY 2022. Nevertheless, we have been pleasantly encouraged by the rapid recovery in our customer offtakes starting from the middle of June on easing of pandemic related restrictions and subsequently 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. We are witnessing a sharp recovery with July registering revenue recovery of 85% vis-a-vis FY 2020-level, August is even better. 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. Anyone who wishes to ask a question may please press star then one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star then 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. To ask a question, please press star then one. The first question is from the line of Bhavin, an Individual Investor. Please go ahead. Bhavin, an Individual Investor, please unmute the line from your side and proceed. Bhavin, 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, was 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?
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. Moving forward, it will normalize back to its old levels, which is around INR 44 per sq ft per month.
Other than rent, were there any other specific cost-cutting measures?
All the direct costs were obviously related to the store operations, with the power and fuel and, we also, you know, didn't give full salary for the month of May to our employees. There were cost-cutting across all the expenses. You know, it will normalize now as most of the stores are open on most days, so it should come back to around INR 170-INR 175 per sq ft.
Okay, thanks.
Thank you. Participants who would like to ask questions, please press star then one. The next question is from the line of Himanshu Shah from Dolat 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. A couple of questions. One, 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. Sir, any further store closures that we are looking for or what should be that number for rest of the year?
We closed down three stores during quarter one and there are no more plans to close down any store as such. The net addition for the year is around 12-15 stores. Out of which I think, in the, in Q2 also we've opened two new stores.
Okay, great. Secondly, sir, there has been an increase in raw material prices which we have been hearing, probably a sharp increase in raw material prices. Despite that, our gross margin has seen a healthy improvement, both on a YoY and QoQ basis and even compared to pre-COVID levels. Anything specific over here? What has been driving this?
The rise in prices of the raw material is across industries and it's for everyone. The customer is bearing a part of that. We have adjusted MRPs of a lot of products because of the rise in the cost. We are looking to maintain our gross margin from between 30%-32%. Any increase in raw material prices would lead to a higher MRP.
Okay. What would have been the overall price increase that we would have passed on 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?
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, polyester yarn had a different rise in prices. You can say the average cost of raw materials went up by the cost of goods sold for us went up by around 3%- 4%.
Okay, okay. Lastly, sir, earlier we had been guiding for around 20 store additions. We have scaled down that. Is that in backdrop of COVID or, on a structural basis now we would be looking for adding around similar number only that is around 10-12 stores on a net basis?
We always, you know, we tell investors that we are looking to grow at about 20% every year, out of which 15% is from new store additions. The initial target itself was around 15 stores, that has got delayed because of the second wave. I think we'll be able to open the net addition of at least 12-15 stores this year.
Okay, fine, sir. That's it from my side. All the best. Thank you.
Thanks.
Thank you. Participants who would like to ask questions, please press star then one. The next question is from the line of Amit Porwal 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. What would be our debt level both at a standalone basis and a consolidated basis?
The net debt, as on, end of June is around INR 45 crore.
INR 45 crore. That's a little bit higher as compared to what we had in March, right?
Yes. In March it was INR 35 crore.
Okay. Do we see any increase in debt levels going forward?
No, because as you see the sales numbers, the sales numbers for the first quarter is low. 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. Going forward again we'll be, the net debt would be zero, I think towards the end of the year.
Okay. Considering most of the stores were closed in Q1, did we write off some inventory or did we take some additional provisions there?
We took an extra provision of INR 2.25 crore in Q1. Last year also we had taken an extra provision of about INR 9 crore due to COVID in our inventory.
We are going conservative there, right?
Yes. This is in addition to the 1% provision that we take usually.
How have you seen post the relaxation of lockdown? Though Manshu mentioned that you have already reached 80%, 85% of the sales volume compared to FY 2020. Are we seeing any festive related demand picking up, considering that Rakhi is around the corner and all?
It has been very promising and we are very positive because 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 2020, which is a very good number because that is a pre-COVID year.
That leads to another question. What would be the EBITDA range for the next three quarters? Leave apart quarter one.
I think for the whole year we are targeting an EBITDA of about INR 20 crore-INR 25 crore.
INR 20 crore-INR 25 crore. Okay. That's it. If I have any other questions, I'll come back to you.
That is obviously contingent to the third wave, because it all depends on how COVID behaves in our country. Thank you.
Yeah, obviously. Thank you a lot for answering my question. I will come back into the queue.
Sure.
Thank you. Participants, to ask a question, please press star then one. The next question is from the line of Sachin Kasera from Svan Investments. Please go ahead.
Yeah, good afternoon, gentlemen. I have two, three queries. First was, if you could tell us how while we all know that the season was impacted because of the second wave, but just for our understanding, how have we done vis-a-vis competition? If you could give us some sense on that could be very helpful.
I would not want to comment on any competitor's performance, but as I told you, like 45% of the days our stores were open, you can extrapolate that number and then calculate it accordingly. It was an affected quarter. Some stores were only open for a couple of hours a day, it will be very hard to judge the performance by looking at the Q1 numbers. I think Q2 will give a clearer picture.
As per our understanding, have we 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 gross margin, 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 INR 260 crore.
What was the same number in March, just for my understanding?
INR 261 crore. INR 265 crore, sorry.
Okay. Because of this lockdown and, you know, 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, in the end of March quarter. Do you think that we will need to leave some extra provisions further for the inventory right now?
In the last 12 months, we've already taken an extra provision of about INR 11 crore on top of the 1% provision that we already take. I think that will be enough, and that will cover all the depreciation that we've seen because of the, you know, restrictions and stores not being operational.
Sure, sure. 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 are running little higher in terms of inventory levels, and over a period of time you would want to reduce it?
On a normalized sale, we want our inventory to be around 90 - 100 days. That translates to about INR 220 crore-INR 230 crore of inventory. That is our target.
Sure, sure. How are we approaching the coming festive as well as the winter season? Are we going to be quite cautious? 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 inventory than, you know, when they were preparing for the season. Then the wave happened and everybody got impacted. Are we going to be approaching the festive and the winter season with much more caution?
Because of the sales in July and what we are seeing in August, we have a very positive outlook in our Q3. I think that should be a very strong quarter for us. Because of the volumes that, you know, we deal in, it's very hard for us to procure ready stocks. You know, 35% of our sales are private labels, so that has a lead time of about 60-90 days. We have to plan in advance, and you can say it's a part of our business risk, because COVID is a big contingency and we can't not plan our season because of, you know, a third wave prediction. We are very positive, and we are planning our festive season with, you know, full confidence.
I think it should be a good quarter for us.
Sure. Just lastly, we have been talking about, you know, product differentiation and working on in-house designing and also now you set your own factory as one of the key differentiators in the next two, three years that will probably help us outperform and do much better than industry. Can you just update us where are we in that journey right now, and is it all going in the right direction and the speed of changes as per what you think?
Last year our own factory's contribution was only less than 5% of our total sales. Right now, on the current going run rate, we've already reached about 18%, and we want to increase this and go to 50%. 50% of the goods in our stores will be designed, developed by my in-house team. I think for FY 2023, our target is to take it up to almost 50%.
Will you be able to share some data as to what is the normal shelf life or, you know, the response for the in-house labels and in-house production vis-a-vis what you get it outside in?
We have seen with the data that we have, we have seen that the products that are coming from our own factory, it's selling at least 20%-25% faster rates. The stock turnover ratio is much, the number of days is much less for our own production goods. 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 in terms of opportunities in terms of acquisitions or anything to capture the next level of growth or you just want to grow organically store by store from V2 own channel itself.
We don't have any such plans, but, you know, it all depends on the circumstance and the kind of deal that we're getting.
No, what I mean to say is when you say, deal 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. Our target is to reach the INR 750 per sq ft number.
Grow at 20% every year and eventually take that per square feet sales to about INR 1,000 per square feet and increase our EBITDA percentage. The target was do it this year, but again, COVID spoiled the party. The target for FY 2023 now is INR 750 per sq ft and INR 1,000 crore of sales.
The second question I wanted to check is how is your digital business panning out? I mean, what is the outlook which you're looking given this current circumstances and COVID still being around, how are you seeing that business going up?
Which business?
The digital business. Online sales.
So like-
Hello.
You know, we've already always had that stance that we don't wanna burn money. We just want to have it as a complementary channel and leverage our inventory over that channel. We did INR 12 crore of sale in Q1, but because our stores were not shut, it was a huge proportion of the overall sales. Going forward, our target is to have our e-commerce sales anywhere between 5%-10%, but without any cash burn. We are still learning the trade and, you know, we're still learning how to manage returns, how to reduce the marketing costs and, so I think, moving forward, we wanna have e-commerce also as a profitable channel. Gradually we'll build upon that channel.
Are you seeing e-commerce giving you access to new geographies within India itself or it's coming from the same pockets which you are currently aggressively present in?
In e-commerce, about 30% of our sales is from the cities that we're already operational in, 70% is new geographies and new customers for us. We have seen, because we have a CRM, that the overlap is not much. Whatever customers that we're getting from e-commerce are new customers for us.
Okay.
Which is a positive sign for us.
Right. Thank you. That's it.
Thanks.
Thank you. The next question is from the line of Rajesh Jain from Jinanand 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 nine months? Second, would you like to give guidelines with respect to our top line and EBITDA for the next year?
Okay. I think, as I said, for the whole year, we're targeting an EBITDA of about INR 25 crore.
Around INR 30 crore-INR 40 crore.
The first quarter EBITDA was - INR 7.5. The rest of the 9 months it becomes about INR 30 crore-INR 32 crore of EBITDA. For next year, we want a per square feet sales of about INR 750 per sq ft. We will have an area of about 1.1 million sq ft. I think if you extrapolate that, it'll give you a number of about INR 1,000 something crore with an EBITDA margin of about 8%-9%. That is the target for FY 2023.
Okay, good. One more question. Would you let me know, like, what is your plan for next three years with respect to addition to addition of our stores? What is the plan for that?
Every year we wanna grow at 20%, out of which 15% will come from new store addition, and we are targeting a positive SSG of 5%. You can say that we'll add around 15 - 20 stores every year for the next three years.
Okay. Okay. Thanks. Thanks for That's all my side, guys.
Thank you. The next question is from the line of Amit Porwal from Marathon Capital. Please go ahead.
hi, Akash. one thing which the presentation and the website also stress about is the private labels. I've seen couple of presentation for last few quarters and all, only five private labels have been displayed. Are we, you know, working on, you know, additions to our private label?
Yes, we've been already applied for trademark actually. We are just waiting for that approval before we put it in our presentation and on the website. We have registered about, I think, six new brands, private labels.
Just from my information, private labels would command a little better margin, right?
No. Because private label is basically any goods that is made in our own, you know, brand. The extra margin would be in the products that are made in our own manufacturing unit.
Is the private label being manufactured in-house or still it is going out?
Out of the 35%-40% private label that we're selling in our stores, 10%-12% is from our own manufacturing unit.
Okay. We plan to increase it further in our in-house then, right?
The plan is to take the private label contribution to almost 80%, 90%, out of which our own manufacturing and our own developed designs, own product development would be about 40%-50%.
Okay. one last question on the omni-channel sales. out of what would be the first quarter sales in omni-channel?
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.
I think that's it from my side. Thank you.
Thank you.
Thank you. As there are no further questions from the participants, I 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.