Ladies and gentlemen, good day, welcome to the V-Mart Retail Q1 FY 2024 earnings conference call, hosted by Nuvama Institutional Equities. As a reminder, all participant lines will be in the listen-only mode, there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, 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. Nihal Jham from Nuvama Institutional Equities. Thank you, over to you, sir.
Yes, thank you. Good evening on behalf of Nuvama Institutional Equities. I would like, like to welcome you all to the Q1 FY 2024 earnings conference call of V-Mart Retail. From the management today we have Mr. Lalit Agarwal, Managing Director, Mr. Anand Agarwal, Chief Financial Officer, and Ms. Suchi Mukherjee, CEO, LimeRoad. I would now like to hand over the call to Mr. Lalit Agarwal over for his opening remarks. Over to you, Lalitji.
Once again, welcoming you all to the call. The market continues to be improving, and we are seeing betterment every month, which we, which we have said also in the past call. Month-on-month, things are getting better. Lot of, lot of markets have improved significantly, especially towards the eastern side of India, the Northeast, the East, the Bihar, all of those zones which were under deep stress until the last year, we are seeing good improvement coming in. Industry overall has been a little muted this time. Overall in fashion, most of the brands have reported a little lower footfall and a little lower conversion. There is some mismatch between what they planned versus what, what they are able to convert today.
So that is largely we are able to see that because of some international economic pressure, as well as lot of tourism beginning again. A lot of these upper middle class or upper class people who used to be the customer for the malls and for the brands, they have, they've also moved out, they are shopping outside India. Some of that has also happened. Plus, definitely there has been some low on the, on the technology jobs and on the, on white collar jobs. There has been some, I would see some deflation which is coming in there. Largely both the value retail market over at the mark level have incrementally shown betterment.
They have moved a little positive. We have seen some green shoots, especially, I told you that some markets have been very, very good because there was, there was large impact last year. Otherwise, also, we are not seeing too much of degrowth, which we continued seeing in the last year. There we have seen almost a flattish number across here. There are still certain regions, certain zones, which have been not behaving as per what we thought of, which is in especially in Southern India and also especially the, the, the Uttar Pradesh belt, which we say continue to struggling because of the transition of informal economy to the formal economy. Some of those pieces we are still witnessing. There is still some concern.
There has been weather disturbance also during this quarter. Especially in the month of June and July, we've seen a lot of weather disturbance. There's definitely a lot of impact which gets created when there are weather disturbance, which are extreme in nature. Some change in changing climate perspectives has come in. Summer has been shortened this year. Rains have, have become little, come little more earlier. We've seen a lot of weather disturbance, especially in the part of Gujarat, Rajasthan, Northern Himachal, Uttarakhand, Uttar Pradesh. A lot of these belts have seen a lot of those. Yeah, largely, in spite of all of that, things are not as bad as it, it could have been.
We are seeing a qualitative growth coming in, in, in, in the same stores, which is a good news. Most of our plans that we undertook in terms of, in terms of the reduction of the prices, reduction of the ASP, which has resulted us into, into selling more, more pieces from the same store. That's, that's, that's what we are, we are also seeing. But on the, on the, definitely there has been some regional festival or, or what I, what we call the wedding date. There have been some shifts which has happened this year also because I still didn't see any marriages. Then once again, May and June had marriages, but May marriages brought in some sales, June marriages didn't bring in the sales. Also, the weather affected there.
This time the, the festival, which is a big festival for V-Martian customer, V-Mart customer, which is Eid, which is a Muslim community, which comes in and shop. Normally, we believe those, those, those are our, our basic, dedicated customers. They should have come in, we have seen a little lower per capita consumption coming from them. Some of these things have resulted into, into what the market is, and that is how Jupis also behave. Otherwise, the footfall has gone up. We have seen some good footfall coming in. People are coming in, in the, the market. People are coming to the store as well. Yeah, the, you know, the, the, the purchasing patterns have shifted. They are moving in.
They are, they are also trying out other supplies which are, which are being brought in by other retailers. There is also the, the competition, which is, which is working, which is bringing in some more, some more, more sales. That's also happening. Otherwise, digitally, we are seeing even the e-commerce players are. I mean, definitely there has been a shift on spending money towards profitability. That's a good news for the digital market. A lot of, lot of changes has been witnessed. In the kind of communication that are being released, and that's what we are also witnessing.
That's a good news, and that, that makes, create a better level, level playing field, and that will definitely help overall digitalization and overall market, even, even, everyone, including us. I think there is definitely a more, more consumption, which is also happening in the digital space. I mean, I would not say more because the plans for them has not been met. Most of the digital players had huge plans even in the last quarter, but they have not been able to get those. At LimeRoad, we have seen a, we have seen our, the revenue growth. We have seen the, the up, uplift that we wanted to establish. There has been almost a good job, which has been done by the team.
Then, most of the plans, the projects that they undertook has, has, has been, has shown good results. Then, our focus, definitely right now was to, to consolidate and, you know, set all the areas of processes in LimeRoad up and running so that, you know, we get back those old customers, and we get back those basic LimeRoad sales. Yeah, integration on omni-channel, integration of offline versus online, all, I think all of those, Suchi will speak on those. There are some customer segment that we are targeting on those. I think there will definitely all of this will bring in a larger, a larger chunk of customers who would want to interact with us, and we can interact with lot, lot of those chunk of customers.
On the upcoming side, I think, yes, there are now little weak period. Yeah, there are small, small festival which will come in, especially in the right now, there is a, there is a festival which is a retail, consumption led festival, which is the 15th August and then all of those. That's, that's going on in the market. We are also focusing very highly to try and get some sales in these periods because there is always also inventory that we want to clear off during these times, so that the festivity which is going to come in, which is going to be Durga Puja, Diwali, Chhath, all of those, gives us a more freshness at the store level, which it gives a better perspective to the customer.
This time, the Diwali and the festival is also moving into third quarter. We'll see a little muted second quarter, and we'll see a little better third quarter, which is going to come in because last part of the Diwali and the Puja and the winter sales. This time, Diwali is also we calling it a winter Diwali. That's how it's going in. Largely, you know, we expect the customers to come back by quarter three, and we expect the consumption also to bounce back by quarter three and increase because people have been, have gone through a muted consumption.
We are seeing some green shoot also at the airport, I don't know whether we will call it a green shoot because we also had a very low base. The airport stores have started doing, are performing better than, better than average. That's what we are also seeing. Rains have been quite normal, except Uttar Pradesh, and maybe parts of Bengal. There we have seen some stress because the rain is lower by almost 10%, and that may get recovered in the coming period. That's how the prices of crops, the prices of crops, I think, wheat is, wheat is still much higher, and the ASP, the MSP issues are no more there.
I think the farmers are getting good income, the inflationary pressure continues for the consumer, and that is still there. Yeah, have reduced to a certain degree, people are also getting used to those inflationary pressures now. There are still recoveries for Unlimited, which is under challenge and then which is also got hit, especially parts of Telangana, Andhra, have seen a little, I think a little degrowth. And Tamil Nadu has especially been very good. Kerala, Tamil Nadu has been very good, we are able to see some growth in those markets. On our side, on our backend side, we have been working on improving a lot of processes.
Our new warehouse went live. We have, we have already shifted our old warehouse into the new warehouse. The new warehouse is up and running. There are a lot of speeding challenges. There are also this new warehouse shifting also disturbed our supply chain, resulting into a little fill rate issues at the store level, also resulting into some sales getting affected in the month of June and July. There are, there are a disturbance period which went up to maybe 45 days. Still, those are weaker times. We took those issues, pieces. Now we are up and running. The warehouse is fully on. People are right there. This is coming up to be a good. Definitely, some automation brings in also some complication.
We have taken a lot of automation in this particular warehouse, which will show results, but it will take six months for us to stabilize and then reap into those benefits and reap into those results, which will definitely result into better TAT, which is a turnaround time, better mind to market to the customer and better replenishment, because that's a very, very important thing. As things are moving, we are seeing, and I was in the market in this time, you know, I was seeing so much of, so much of differentiation between customers, so much of differentiation between markets, so much of differentiation between regions, zones and interiors. There is a customer taste differentiation. There is a trend change, which is also happening. There's a fashion change, which is also happening.
There's a sea change in the fashion element, the way people would wear, the kind of silhouette that people would wear, the kind of fashion they wear. Some of them have started accepting it very fast. Some of them still are on their older, older fashion taste. There is a, there's a lot of technology, lot of analytics, which is getting involved into understanding all of this. Lot of, you know, discussion with the, with the store and lot of visits to the stores are also happening. I was in the market, you know, I mean, I visited almost 40 stores in this quarter. You know, there's a lot of, lot of changes that we see between a store to store, and that's the excitement that we have, and that's our strength that we have.
We know understanding these, these differentiations in the customer persona, understanding the differentiation at the store level and creating those kind of product lines, whether offline and then adding it with online. That's the new piece which we are bringing in, saying that wherever there is a huge diversity, wherever there is a gap in the product line, how do we try and suffice that with our online presence and try to integrate that with the store team? As Suchi will give you some, some pieces on those. On the changes that we did in the design and the sourcing team, there's good work happening. The team has stabilized. There is, I think, the outcome is coming in.
We are expecting a very good inventory and very good fashion coming up in this autumn/winter season. The fall collection is going to be beautiful. We have started launching some of the autumn collections in the store. So some of those pieces are on. There's improvement happening every month from this team, and then the things are sharpening up here as well. Our focus has been to try and provide a little more edgy fashion, but more, more a young family fashion, and that's what we are all about, and the youth and the young family. We want to focus very, very high on that particular segment, because 60% of the customers who shop from us is a woman, and that's my, my core customer.
We want to really put all our energy and all our emphasis and all our understanding to try and lure them. The young family is the core customer that we are focusing on. That's what we are trying to turn around, because there are a lot of players who are walking down the path of youth and the fashion, and I know there is something which is a buzzword coming up in Tier I and Tier II towns. Yeah, our focus remains continuing to be there.
There may be some, some customer who may deviate, which is the, which is 5%-10% of our customer, which may deviate to these brands, but we, we should keep and, and keep focusing on our strength, which will bring in some additional customer to, to, you know, continue, continue deepening our umbra, and that's what I call umbra and penumbra. What's my customer segment, which I target and focus, which, which I, I will want to also serve, which is not my focus customer. Anyway, the, that's where we are. We are confident on, on, on the seasons to come in.
There is definitely some, some expenses which has gone up, and there's some pressure on the cost, which, which we see, and we will want to manage it, and we are on track, and we'll try to manage that as well. Yeah, let, let, let Anand go with all the details, and then we'll take the questions and answers. Thank you. Go ahead, Anand.
Thank you, Lalit, good afternoon, everybody. It's been a slow but a strong quarter with building the foundation layers for the omni-channel integration, which should now set the pace for a new phase of growth for V-Mart. Before that, before Suchi actually helps us detail that out, let me first take you through some of the key, key highlights from this quarter, then we can open the house for questions. Quarter one typically is the onset of the summer season and is marked by a strong wedding calendar. This year has been slightly unusual, with a significantly lower mix of wedding dates, leading to slightly lower consumption trigger.
On the sales side, as Lalit just mentioned, east, east zone, particularly Bihar and Northeast, showed remarkable progress and led the growth, while amongst the laggards, I think Andhra Pradesh and Telangana were amongst the bottom performers. Continuing from the last couple of quarters, we also corrected our pricing mix of products to provide more product width at lower price points and improved our value quotient for the value-seeking inflation-hit, large customer base. The strategy has worked, and we did see 23% higher footfalls, and also same-store volumes growing by 3%. While we saw good growth in volumes, but the same was not reflected in value due to the planned drop in apparel ASPs, which went down by 6%.
At an overall level, the sales grew by 15% for V-Mart, 4% for Unlimited, year-on-year, and LimeRoad revenues increased by 47% quarter-on-quarter. The digital business mix, which includes commission revenues from LimeRoad and also sales revenues from the V-Mart product placements on other marketplaces, increased to 5% from 3% in the last quarter and is now bound to grow even further. Working on a low base and correcting inefficiencies, the Tier 4 stores witnessed a 14% sales per sq ft growth, while Tier 3 stores, which constitute almost 50% of the store base of the company, remained affected by sales efficiency and therefore SPSS.
South market showed challenges with a negative same-store sales growth of negative 11%, largely coming in from AP and TS, while the rest of the states performed relatively better, Tamil Nadu and Kerala leading the pack. The new stores opened in South in last one year continued their better performance, with 27% higher sales per square feet than the legacy acquired stores. That's a good sign that we continue to build on these new stores in South. On the margin side, in line with our earlier communication on stabilizing the margins, the gross margin dropped by 1.5% year-over-year to 35.8%. Improvement in the product mix, favoring lower margin and lower price point product, and sharpening of the value pricing for the customers allowed us to bring the margins back to the pre-COVID levels.
We've taken a high price increase in the previous year, which had led to a higher gross margin, which has now been corrected, and as was discussed in the previous two quarter calls, this is something that we would, we will stabilize at around 33%-34%. Some amount of discounting of higher price inventory that we carried from last year, on which we also gave some discounts during the end of sales season, sales period, also impacted the gross margins for the quarter. Coming to expenses, while the expenses have increased by 46%, they also include the full impact of the newly acquired LimeRoad business.
The expenses for the quarter include an amount of around INR 53 crore towards we spent on online business, which include both vmartretail.com as well as LimeRoad.com. This online spend is majorly on account of marketing costs, excluding the online contribution on the expenses. The expenses actually grew for the quarter only by 8%. Marketing investments in the online space are moving as per plan and are strategized to provide higher support as base of user grows. With the already progressing integration of vmartretail.com with LimeRoad, the marketing spend should also get consolidated, and from the current month, leading to higher efficiencies for the combined online business in future. Moving on to EBITDA. For the V-Mart core business, EBITDA for the quarter was 11.7%, while Unlimited stood at 12.3%.
At an entity level, the EBITDA stood at 7.7%, which included a loss of INR 25.6 crore from LimeRoad and an INR 5 crore loss from V-Mart Retail only marketplace business. The decrease in EBITDA from previous years has been due to the higher impact of inflation on cost, as well as lowering of gross margin to improve value positioning and the decline in SSSG, which otherwise could have provided operating leverage apart from the planned losses contributed by LimeRoad. We remain committed to contain the losses from LimeRoad on a full year basis to 20% of group EBITDA. Quarter three onwards, we should see this negative contribution tapering towards breakeven gradually. On the CapEx side, we have spent INR 56 crore in this quarter, majorly on the new warehouse completion, nine new store openings and some store refurbishments.
The new warehouses commenced operations from mid-June. Inventory reduced by almost INR 150 crore quarter-on-quarter, helping improve the working capital cycle. 10% of the overall inventory was from partner brands, where the company has lower risk with fixed margins on sales and higher trade period. Inventory reduction also helped release almost INR 50 crore cash from the operating working capital cycle, helping the overall operations. Coming to new stores, the company opened nine new stores during the year, during this quarter, eight in north and one in south, under Unlimited, and while also closing one Unlimited store in Karnataka. The runway for the year is still maintained at 50-plus stores, a large part of which should be opened between quarter two and quarter three. With Adhik Maas in quarter two, all festivals have shifted to quarter three this year.
Late festivals, along with good winter, should clear the way for a stronger quarter three this year. Coming to LimeRoad, LimeRoad has been progressing very strongly and as per plan in the last three months, and has been able to significantly improve operating efficiencies and returns, leading to 43% higher NMV from the last quarter. I will request Suchi, who's leading the LimeRoad business now, to update us on the performance and future plans for LimeRoad. Thank you.
Thank you, Anand. This is the second full quarter post-deal, and this quarter has really been about tight alignment of objectives, not just at LimeRoad, but also cross-teams, both at LimeRoad and V-Mart. That is to prepare the platform on which we can unlock structural levers for growth. I'll talk a little bit about that. The team grew the business 43% on NMV, this is relative to previous quarter, and much better efficiency on marketing, as Anand said. Delivering EBITDA, which is as per internal plan. We lost nobody we didn't want to through this integration. Internally, across levels, across the org, people have started collaborating.
You know, it's one thing for Lalit and me to mandate collaboration, but it's a real joy to see people actually wanting to engage with each other. But this is still day one. We are building deep insights, and with deep rights, actually, to win the hearts and minds of our value-seeking fashion consumer. Last quarter, we said that we would double down on our category supply, that we would marry our inherent strength in fashion-forward women's fashion with VM's strength in men and kids. This quarter, we have already launched a design-centric, fashion-first, value line called LimeRoad Studios for women. Within eight days, we were able to identify top sellers from this line, which will now be able to make its way into V-Mart stores.
Equally, 80 stores went live, 80 V-Mart stores went live on LimeRoad, and V-Mart is actually already converting better on LimeRoad than any other marketplace has ever done. Early days, but good to see. Over the next few quarters, we will continue to double down on LimeRoad and V-Mart's strengths to win on category supply for our consumers. You will see greater search and discoverability, both online and in stores. By the end of this quarter, we expect to launch our first one-click access from stores to the LimeRoad platform. Lalit alluded to that in his in his speech. You will also see increase...
I mean, our consumers will also see increased reasons for deep trust on the brand, and we will continue to build a stronger P&L. Some of that is already happening. vmartretail.com's traffic has started to come to LimeRoad. We fully expect that by the end of this month, the migration will be complete.
...Equally, Lalit talked about the warehouse, LimeRoad's quality processes have already moved into the group's new warehouse. That's, that's all for now, and we will take questions. Thank you.
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 their 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. First question is from the line of Tejash Shah from Spark Capital. Please go ahead.
Hi, good afternoon, thanks for the opportunity. Couple of questions from my side. First question pertains to our data on slide six. While our Tier 1, Tier 2, and Tier 4 stores are doing well on sales efficiency, parameter, Tier three stores continue to struggle. What would explain this trend divergence between the same set of consumers, perhaps?
Tejash, there are two things that we are seeing. One, definitely, at the rural level, we are seeing certain betterment, and which I'm, which I'm seeing, and this is a green shoot, which I feel. But the base is so low that you can't really, you know, calculate that because the base there is, it has very, very small number of stores, maybe only 40, 40, 48 or some stores, and then, and then, or 53 stores. Here at the Tier 3, you have got 200 something stores. Larger problem, still, that we are seeing is in Tier 3, where we are seeing a, both the...
There is a problem with the people's capability to handle their monthly budget or their, you know, their whole house budget and the inflationary pressure versus the income level. All of those is still hounding them. Plus, we have seen also, additional supply of retailers. There's a lot of supply that has come into Tier 3, which is also leading into certain, certain diversion of customer at this moment of time, because that's also, you're seeing this is, this improving. Overall, we are seeing, still there is a pressure here. Largely, our Tier 3 stores are in Uttar Pradesh, and Uttar Pradesh continue to be under a little pressure, as I said earlier.
Sure. Lalit, one of our competitors, they filed on exchange early, early this quarter, that, their 1Q numbers were very strong. Just wanted to know, are we, like, are we losing competitive edge in some of these markets, or this is just one-off and too much to read?
I mean, I think, as I said earlier, the Northeast, East, and the Bihar market, people who have a little larger number of presence there, would see a better, better result coming in, because there is a, there is a skewness that competitors have, because they are regional in nature and more, more, more aligned on certain, certain territories. There are those, those kind of benefits that they have received in the markets which have not performed this time, as we mentioned, Uttar Pradesh and South India and even the northern belts because of the rains and stuff. There is a lower presence of such kind of competitors, maybe whom you are indicating.
Okay. Second question is, what is our annual guidance that we had given last quarter of INR 50-60 crore of loss funding in LimeRoad? We had started on a higher number on, on, in 1Q. Where does our annual guidance stand now on this?
I think there's no change in the guidance. We would, we are sticking to our, our plans, and the plan, and we are on plan. There's nothing that is gone ahead against the plan. The plan was that we will invest in the first quarter, bringing customer, and then slowly and gradually get more efficiency out of the money spent. That's the plan that we have. We would, we would stick to our plans and worry about that.
Okay. Last one, this is obviously seasonality has its role to play here, quarter-over-quarter, our network has gone down and our debt has gone up. Do you have any target debt number by the end of year?
Anand will be able to answer that. That's a good question.
Tejash, I, we have a plan in place, so, I don't have a target number, but definitely a range in which we would want to operate. We will see definitely some more stress or slightly higher levels of debt at the end of quarter two, which is the beginning of the festive season, so we will be building up more inventory around that time. I think towards the year-end, we should see that, almost at similar levels as what we see now or as we saw in last year, quarter, last year-end.
Mr. Shah, may I request you to join the queue for any follow-ups? Thank you. Before we take the next question, I'd like to remind the participant to limit their questions to two per participant. If time permits, you may join the queue for any follow-ups. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi. Good afternoon, sir, and thanks for taking my question. Firstly, on the demand environment, now, broad inflation, that continues to be on the higher side. Currently, there is inflation in, let's say, vegetables, and there is an expectation that, you know, overall food inflation, including wheat price, is also going to be high in the near term. I mean, if this was the major problem which has been impacting low-income consumption, just wondering what would be the trigger in the festive period, you know, for this to revive? Because festive period happens every year, right? But this inflation issue is, is not going away, at least in the near term. Just wanted your thoughts on this.
You know, you, you're right, Sameer, and this is definitely something that we are also watching over. But yeah, you know, vegetable prices are also very seasonal in nature. You know, why I'm saying is also the fact that you have an election coming up in 2024. There's a lot of work that the government is also planning and thinking. We are anticipating that a lot of those things should come down, and then we should be able to see a little more flattened inflationary rate during those time, because we will see some of those going down. Yeah, largely because we, for the last three years, people have not been contributing in festival.
So we believe this festival should be a good festival because all of the year, the whole of the year, the people have started getting back to their jobs, and people have started getting their earnings back. There is some, some growth in the earnings. There's some, some growth in the employment levels in India. So there's a lot of intra investment that the government is doing, a lot of money that the government is spending. There, there should be more money and more confidence. The feel good factor has to go up. That's what our analogy says, and that's how we are anticipating our plans.
That, that's helpful, sir. Second question is that footfalls are up 27%, and on a per store basis, if I calculate, this would be around 13%, which is a pretty healthy number in my view. If people are coming on in stores and not buying or buying less, would you say that this is a general demand issue, or, I mean, something that we need to fix with merchandise or look and feel, et cetera?
I think there are two issues. Let me also accept this, because there was some problem that we had, and we've been facing for the footfall counting process, because it is mostly a manual process, and we've tried to, because, because while we are analyzing what is the problem, where is the customer going, customer is coming and not coming, we found out there were some gaps which we have tried to correct. Still, not all the stores have been corrected. There is still some more correction which has to happen. This, there's some growth which is more a clerical miss and then which is grown because of that.
There could be definitely some more, some reduction in conversion, because there is additional supply in the market, and people who don't get something in our store or who, who want to experiment or experience us as well. There could be some conversion, low conversion, which would come in also, which I don't, which I don't deny. When people have multiple stores across the street, and they, they can move around in store and go and come back, so that all gets counted as footfall, but people go back and come back, so that, that come, it doesn't get counted as a conversion. There could be those issues as well.
Got it, sir. I'll come back in the queue for any follow-up, sir. thanks a lot.
Thank you. The next question is from the line of Varun Singh from ICICI Securities. Please go ahead.
Am I audible?
Yes, you're audible.
Okay. Okay, thank you very much for the opportunity, sir. I'll just pick up from the previous analysis from Sameer's question regarding higher footfall. I understand it might be representative of clerical mistake in the base quarter, but still, same store, same volume that is in positive trajectory, +3%, whereas SSSG is -3%. Of course, we understand that there has been more impact in Unlimited, might also be because of a conscious value positioning that we would have been executed at the store level.
Net-net, I mean, given 20% revenue contribution from Unlimited in the rest of the business in V-Mart, so my question is, like, lower average selling price and positive same store sales volume, given this context, how should we, you know, look for this year's SSSG performance or expectation? Also given the context that we expect next quarter to be soft and second half to be much, much more stronger. How should we? I mean, if you can give some understanding, that should help us numerically to understand on the revenue growth expectation that we should model or build into our estimates.
See, Varun, at, at V-Mart, see, we definitely are positive, we are bullish. We want to plan for betterment. We are definitely planning for a, for a like-for-like growth of at least, or around 5%. That's the, that's the plan that we have in our mind, and that's what we should see, at a, at a value level. Then the growth at the quantum level should go up by 8% or 9%. That's what we think. Because, because still the, the pricing, the ASP continues to be lower, and we want to maintain that, and we've got some great benefits. We will want to maintain that ASP, which we have done. Then we, we'll further correct it actually, wherever, wherever required. That's how you can, you can estimate.
This is also an expectation, and we may go off road.
In that context, sir, because we want to live with a lower ASP, or given the price correction that we want to inculcate, EBITDA margin decline in V-Mart has been very, very sharp. I mean, now at 11% odd is the margin, and this margin looks lower than Unlimited EBITDA margin. I'm also kind of unable to comprehend that the strategic correction in average selling price and the impact on EBITDA margin of V-Mart, which looks relatively lower compared to Unlimited. How should we think about the EBITDA margin also on these two franchises?
Hi, Varun, this is Anand.
Yeah.
Unlimited, see, the EBITDA is, this is post-Ind AS EBITDA, and as you would recollect, the Ind AS adjustment accounts for the rent to be negated from the, you know, the numbers, profit numbers. Unlimited traditionally has had a higher rent percentage as a percentage of sales, and therefore, optically, the post-Ind AS EBITDA will look higher as compared to V-Mart. On a pre-Ind AS basis, it would still be lower than V-Mart core business. Your point is correct, but the explanation really is the Ind AS adjustment. On a pre-Ind AS basis, Unlimited would still be lower than V-Mart.
this would be true, I mean, historically, over last several quarters, or this improvement has come off lately?
No, this, this has remained similar for the last many quarters, or it will always remain same till the time you have numerous stores in Unlimited network, which have same or similar kind of rent as a percentage of sales.
Got it. Got it, understood. Then my last question is on LimeRoad. We spoke about deep rights to win heart and mind. Just wanted to understand that, what are these right to win customer's heart and mind? What is the reasoning for V-Mart for customer converting much better on LimeRoad? I mean, if, if you can talk about more the rights to win that we spoke on the call, that's the last question from my side. Thank you.
As we outlined last quarter as well, you know, the value fashion consumer, fashion is a very fragmented space. For this value fashion customer, there are four pillars that we have. One is to give them supply, that supply has to be sharply differentiated from whatever else is available. We genuinely believe that when we combine our ability with category editorial, spotting of trends, select trends, all of that, together with V-Mart's back-end on sourcing, our vendor base, we're able to de-deliver supply, which is very interesting, very, very well-priced, and without having any real trade-off with quality. That three parameters, you know, just saying and ensuring that is extremely hard. We're able to do it because V-Mart historically has won price and quality.
I think we understand fashion, and we bring that together. That's, that's one. That is the supply access. The second piece is the search and discoverability access. It's hard to discover, and I don't think anybody, any woman goes out saying, "I'm gonna buy the cheapest black dress today." They just want really good black dresses. But, but discoverability and search is broken. It's broken at stores, it's broken online, and you will see a lot of stuff that we will do with technology to enable that, both at the store and online. Then finally, there is the matter of deep trust online, right? Most of... If you, if you look at Bain's, I think it's 2020, 2021 study of consumers, you will find that the biggest barrier to consumption online is trust.
The biggest barrier comes from the number one reason there is trust and quality. I think we nail this, and that gives us incredible right to win. Then when we combine our core capabilities in tech and data, and we believe that that is our core, core strength at LimeRoad. When we're able to do that, I think we deliver much, much faster cycles. We're able to convert data from consumers on testing to actually identifying winners and double down on that. I think that's a very exciting place to be in from a business model perspective. I think those four things are a right to win the space. You will keep hearing us give more and more out to our consumers. This is, this is that.
I think that's the heart and mind, so.
Got it. Yeah, thanks. Thank you very much.
Thank you. The next question is from Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, good afternoon, Lalitji, Anandji. Thanks for the opportunity. If I look back post-COVID, I think we started highlighting the problem in the core market, and food inflation has not yet subsided. In between, we were also wanted to work the journey of online, and now we have LimeRoad our in our portfolio. Just curious, that despite we have taken the price increases, the recovery has not happened. This, I was a little excited because in the opening remarks you made, that you are trying to do the differentiation at the store level. Now, we are a value fashion player, and we remain relevant to the consumer mind, but challenges are humongous and we are trying to fix it.
I just wanted to read your mind, that what are the top three problems you are facing at this time, and what are you trying to fix?
Shirish, nothing, we feel has been broken, or there is no issue that we feel is something that is a problem, but definitely we want to understand better. The challenges in front of us is the behaviors of the customer. Because of too much of information, because of too much of availability, because of too much of jam over social media, people tend to move towards a direction. There are multiple behaviors demonstrated by consumers in a different way. There are some consumers who adopt it immediately, but there are some clusters of store or there are some region or some, some states which you see are so, so tightly held with their cultural inheritances and their, their ways of wearing and their color preferences and their festival festivities and the consumption around those.
Some of those are. You will be able to see, like, I was, I was visiting, the towns of Amta region, and I was seeing some towns that have evolved and trying to get evolved like of Vijayawada and Vijayawada. There are towns like, smaller towns like Kakinada, and then smaller towns of, like Narsipatnam. We'll see those towns where we are still seeing people are not going out of their, their cluster. Yellow color is a flag color of Telugu nation, TDP. People will not wear yellow color. They will not allow yellow color to be worn by their, by their kids as well.
You know, some kind of these kind of smaller pieces which are there in people's mind, and which relates to consumption, which gives effects to consumption, is what, what has to got understood. How do a store which is near the college behaves versus a store which is near the offices behaves? There are differentiation that you have and at a store level, that's where the opportunity lies, and that's where if you are able to deliver those away from what a standardized models are being built, because most of the other retailers are built on more standardized format. We have been always focusing on digital, analytical based outcomes, so that we are able to cater to these issues as well.
We're learning this more and more and trying to get into this a little more.
That's helpful. But just, I'm more curious because yesterday one of the leading player also reported the number, and their numbers are promising, and this is not happening one quarter or two quarters. Over the last 10 quarters, the numbers are impressive. On a lighter note, are we missing that purple fashion because the younger generation is now moving towards the purple fashion?
You know, Shirish, I think, we have our very clear, we have very clear focal on, on the customer type, and we have always remained with our youth and the young, young family. The young family is our focal, because as I said in the opening remark as well, that's my 60, 60% of the customer. That's where my focus is again. I don't want to get into those ultra-modern youth through my offline channel. Definitely, our LimeRoad as a channel will help them to, to get onto the platform and, and, and, and give them those kind of product lines if they, those are required. Because these are some of the stores with some, some personas which we are not great at, and we don't want to address those customers. We have never addressed those customers.
There may be a slight, slight seepage of our customer base moving into some of those, but we will, we'll be able to increase the base and the market that we are addressing, and that's what we are trying to focus on.
Okay, that's helpful. My second and last question to Suchi. On slide 10, I'm just seeing the number. The contribution margin in March quarter was 1%, now it has gone up to 8%, almost 700 basis point improvement. What is that secret, has happened now, and as well, when you were running the business? I mean, there are many various reasons how you've done this, but I was just looking for some explanation there.
Actually, that is a lead indicator that we track, because that is ultimately linked to our continuing to build stronger P&L. The way we think about this is really twofold. We think about it in terms of sort of our structure of our P&L and what comprises the P&L. We then also think about it in terms of the structure of what our consumers consume. What ends up happening is that the more we get our leakages, you know, leakages from GMV to NMV, then leakages on terms of logistics costs, leakages in terms of marketing inefficiency, the more we tighten the leakages, the better this number gets. One is this real hardcore, data-driven, technology-first leakage management.
The second is more and more and more closer and closer alignment, and that's the hearts and the minds of the value fashion consumer, really understanding what this is. If you think about, you know, if you think about what this consumer is seeking, my view always is that, you know, price has to be a wow, fashion has to be first. A price has to be discovery, because I don't think any woman says, "I will go and buy a black sari in INR 200 today." They'll buy a black sari, and then if it's INR 200 and it's amazing, it's wow! The more we work on our supply, the more we are able to cater to that, that thing, that feeling in that heart, that joy, that dopamine hit.
What ends up happening is the more we find acceptance, and that acceptance then shows up in terms of operating numbers like, conversion rates and things like that, right? That then flows through. Those are really, that's really the heart of it. The third piece, which we still have to do a lot of work on, is around narrative, storytelling. Not a lot of people still know us, to do that effectively, et cetera. I think that will come. That's not part of the secret sauce for this quarter, but the first two are.
That eight can become 18?
Mr. Pardeshi, may I request you to join the queue for any follow-ups, as we have several participants waiting for their turn?
Okay.
Thank you. We have the next question that is from the line of Rishi Mody from Marcellus Investment Managers. Please go ahead.
Yeah, hi, Anand, can you hear me?
Your audio, audio is slightly muffled, sir.
Yeah.
We can hear you. If you can use the handset.
It's better?
Yes. Go ahead, please.
Yeah. Anand, you've given the split on inventory, and I'm looking at your Kirana inventories at 60 days, which looks a little high to me for a Kirana business. Just wanted to understand, like, why is it so? If you could give me an explanation.
Rishi, Rishi, the Kirana inventory is basically, centered around two parts. One is we also carry some amount of Kirana inventory at the warehouse, and that's like a buffer stock. Overall, at a, at a overall basis, you know, our Kirana business is at around 11%, and, if you look at the commensurate inventory size, that would be still lower than that revenue number, revenue percentage. It is very much, you know, in line with what we planned. There is nothing, there is no overrun on the Kirana inventory.
How much would your store level inventory be in your estimates?
At the overall level, store level inventory is around INR 1.4 crores. For Kirana, days of inventory, it would be around 50 days.
50 days of inventory at store level?
Yeah, yeah.
10 days at warehouse.
Yeah, yeah.
Like, okay, I'm just, like, is there going to be any write-offs on this inventory?
No, no.
Given that 50 days of inventory seems a bit excess?
No, no. This, this inventory item. First of all, there is no perishable inventory here. This is, you know, staples, some part, but largely this is non-food and packaged inventory.
Okay.
These are all fast-moving products, and we typically have had very, very low shrinkages as far as Kirana inventory is concerned for the last, you know, 20 years. This is extremely-
Okay.
You know, important for us to keep. We manage costs because of the high value and the volume that we are able to throughput. It's also because that we are also preparing our, you know, there's a gifting season which is coming up, so you have slightly higher inventory. The warehouse was under a bit of a disruption because of the transition cycle, because of which the warehouse inventory is particularly for Kirana got built up, but no cause of concern.
Okay.
In the year-
Rishi, I want to add here.
Sorry, Lalit. Go ahead.
If you see Kirana inventory, we have large amount of inventory, which is, you know, deos, perfumes, lotions, diapers, sanitary pads, chocolates, you know, some of those inventory which we also keep it as a fashion store. These are inventories which has a longer shelf life, which is two years, one and a half years. So that's how, this is what majorly include also a lot of these.
Thank you. We'll take the next question that is from the line of Lokesh Panik from Valam Capital. Please go ahead.
Yeah, hi. Good afternoon to the team. My first question was on the, on LimeRoad. What would be the ASP out there in LimeRoad, if you can share?
Hello?
Hello. Yes, the LimeRoad ASP is around INR 600.
INR 600.
INR 600, INR 650, but in that ballpark.
Okay. The reason I was asking this is, if my understanding of LimeRoad as a concept is correct and correct me if I'm wrong on that, is, you know, you're a little different from other shopping websites like Myntra or JioMart. Where you are curating a lot of, you know, products for men and women. Ideally, shouldn't your, you know, number of items in an order be higher? You know, you have an editor who's suggesting, you know, a theme for a complete style or for a complete look. If a customer is convinced on that, he will probably, or she will probably end up buying the entire, you know, look in that particular column.
In that sense, shouldn't the items in your order value be a little higher than, you know, your order value of INR 800 and ASP of INR 650? That's 1.5, close to 1.5, which is industry benchmark. Please correct me on that.
Yeah. No, absolutely, it should be, and aspirationally, that is directionally correct. There's a lot of things that need to happen to also enable that. I think, over the course of the next few quarters, we will gradually see some of that happening. There will be two effects. One is, the ASP will soften as we give more and more delightful price points for high-fashion products on the platform. And, and we will also see with cross-sell, you know, what you're saying, which is basically items per cart increasing. These will all come, and, this should directionally be correct, but we do not model this at present.
We model it because we want people to see something, and instinctively, most of this, still at the moment on the platform, is an impulse purchase. You see something, you like it, you take it, you check out, and you just leave. People are not... The platform is still not orchestrated well enough to enable the deep cross-selling in a way that people can make three decisions in one basket. That is in the product pipeline.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you, and over to you.
Yeah, thank you, everyone. There is a lot of work happening at the V-Mart, LimeRoad, and Unlimited level. People are too busy with a lot of projects that they are taking care and focusing on. There's definitely higher focus on the cost reduction, there's higher focus on bettering the product, there's higher focus on increasing the footfall to the store. We have those things aligned, and then we continue to work towards all of those. There are definitely some solutions which and the numbers which will be visualized in the longer term, but at a shorter term, the effort is something that gets visualized, and that's what we appreciate here for.
That's what we are focusing on, where we can be strategically aligned and focus on delivering better value to our customers, and that's, that's our key and that's our core area. Thank you so much for being there, and thank you so much for cooperating and understanding our pieces together. Thank you. Have a good day.
Thank you very much. Ladies and gentlemen, on behalf of Nomura Institutional Equities, that concludes this conference. Thank you all for joining us, and you may now disconnect your line.