Ladies and gentlemen, good day, and welcome to the Q4 FY 2023 earnings conference call of V-Mart Retail Limited, hosted by HDFC Securities. 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. Jay Gandhi from HDFC Securities. Thank you, and over to you.
Everyone, on behalf of HDFC Securities, I welcome everyone on the earnings call to discuss the Q4 and FY 2023 annual results of V-Mart Retail. We thank V-Mart's management for having provided us with the opportunity to host the conference call. On the call we have with us Mr. Lalit Agarwal, Managing Director of V-Mart Retail, Mr. Anand Agarwal, Chief Financial Officer, and Ms. Suchi Mukherjee, CEO LimeRoad. With that, I request Mr. Agarwal to provide his opening remarks and proceed with the conference call.
Hi, good morning, Jay. Good morning, everyone. Thank you. Thank you so much for being on the call. definitely the business has been quite a lot of going in retail. Quite a lot of things are going in the industry. Quite a lot of things are going at V-Mart. We are quite occupied with lot of good stuff. There's lot of emotions which are being generated and lot of new news which are going to come in. Overall I think the way Bharat, the way India has been growing is quite remarkable.
We are seeing definitely lot of good, you know, good potential view of the future consumer market, of the consumption in India. Definitely the way our country is growing, the way people are projecting about the future potential, and looking at this particular year, I think, because of the elections, because of the lot of global turmoil which is what people are talking about, I think India has stood up very well. At the [hinterland] level, what we have seen, definitely, people are coming back to their normal routine. People are back into speaking positive about their businesses, about their smaller activities, having a little more higher confidence on the kind of job that they can get.
The people who can really work on certain particular job are looking at growth because in smaller cities, even in places like Uttar Pradesh, Lucknow and all, we are hearing people are getting motivated by the industrial development, by the upcoming of certain industries in the state and the approach that the state governments are taking. We definitely feel there's lot going on in a lot of those states, lot of India states and there's a competition. This competition definitely brings in more confidence in people. Infrastructure development is also giving lot of confidence to the people. Till now agriculture produce has also been fairly good.
People have been able to the— every income dependent people have been fairly okay on their income levels. Definitely there are pressures in the economy, which is the lower strata of the economy, which forms almost 70% of the population and the, which we have been always speaking. This K graph economy which we have seen in the market is somewhere what I'm seeing is tapering down now, both from the steepness and the degree it used to have on the upper side as well as the lower side.
On the lower side, on the upper side, we saw this demand coming up in hotels, in flight tickets, in malls and in... A lot of those are now, the honeymoon period I call, and the excitement, the revenge shopping, the revenge outing, the revenge tourism, they're all now coming to normalization, back to normalization. We are starting to see that degree getting tapered a little bit. We are also starting to see the lower part of the K, which in the lower strata of the economy where we were seeing people, consumers getting demotivated and then they're, I mean, they were decreasing their consumption. We are seeing those consumption coming back a little bit.
So that part is also getting tapered off. Now some normalization are being seen. We hope that within next one or two quarters we will be able to see positive moods coming in, positive moods coming in from all the segments. That's how, that's how our analysis and our future says. There are definitely states which are doing very good. There are states which are still reeling under some pressure. I think there's also a transition phase which our country is going through, from, you know, informal economy to a formal economy. Then lot of that we can see in the GST collection pieces as well.
It's not the business growth which is coming in, it is also the formalization of economy which is happening. With the formalization, there's lot of benefits that we are, numbers we are seeing on the screen. There is also a pressure which is getting created in the non-formal or informal economy, which is the people who were not used to operate in this, you know, registration or taxation environment and formal environment, they are getting somewhere affected by this whole formalization. They feel themselves a little less confident. They are under some kind of pressure and threat on their businesses, and their businesses seems to be a little down.
Even lesser corruption and even good framework of, you know, or implementation of most of the public distribution system and public distribution of those incentives. I think those formalization also has helped the economy, helped the helped the consumer where it is reaching them to the right consumer. But also there are few mediocre, and there were a lot of [victorious] which used to work. Then they have somewhere getting impacted all of those because of that. So we have seen some part of pressure, a higher part of pressure in Uttar Pradesh, Bihar. Bihar continuing having that, even Uttar Pradesh continuing having that because we have seen a lot of development coming in Uttar Pradesh.
That's a territory that we are watching out. That's something that we are looking at because they are definitely building a lot of things for the future. At the current moment, there's a transition phase which is going on. I think that should take another year or six or eight months so that we are able to come back on that. Rest, I think most of the territories are behaving well, both towards the Southern India, especially in East and Northeast India, has been pretty. Their comeback has been pretty good in this particular quarter. We have seen very good, you know, growth coming in even now from those particular areas, and consumption coming back from there.
The confidence level also of people in Northeast because a lot of activities and interactivities, the government has been very, very good. I think overall, we are feeling good and even the industry has been quite stable now. There is definitely more intense number of concepts which are coming into this market in the retail and the value retail concept. A lot of activity happening here. A lot of people opening up new stores, especially those conglomerates which we know. They are targeting this market. There's definitely more supply in this market, in this value retail space than 2x-3x .
Compared to the earlier days and pre-COVID days, there's definitely a lot of mapping that we did over competition and understanding this competition. We saw a lot of new stores that is built up in the last few years and almost 50%-60% additional number of stores got built by us as well as by the competitors. I think there is definitely more supply. The demand definitely did not grow as per expectation. There is lot of potential between India, in Bharat. We all believe and we all talk about it. As the, in the last two years, two and a half years that we've seen, there's a lot many things happening with those consumers. The demand has not picked up.
It has remained muted or little low. That is where the supply, the additional supply which is getting received is not getting matched with the demand, which is there. I think there is definitely right now a little higher supply. There is also economic pressure on the lower strata of the population. We see some relief coming every week, every month, and I think that's the positive news. But balance, I think at V-Mart, we continue, we believe in the long-term story. We definitely believe what is what we are there for, what is our strength, where should we be focusing on.
We believe that the game that we used to play three years ago is back. It's no more the game. It is definitely a little more tighter. It is little more competitive. We need to be potentially capable and much more capable to meet the future need of the customer, future need of the market. That is how we have prepared ourself. We are definitely preparing ourself. We have extensively worked with a consultant, [Carney], for the last 16 months, clearly focusing on really creating a capable and scalable model for on our procurement, on our planning, on our, you know, forecasting, on our digitalization of this inventory management.
I think a lot of those work by understanding the consumer, having the consumer survey done there, understanding the competition, and then developing and creating certain internal capabilities in our organization with respect to the fabric nomination, fabric sourcing, technical understanding, qualities, quality betterment. We used to always believe in all of this. We have always done this. In the, in, I mean, the kind of model that we are preparing, this is something that is more scalable, and that's what we are focusing on. There's a lot of transition, and there's a lot of process transition also going on in the company. These are all for good.
We are very hopeful that we will be able to, you know, I mean, better our offering, better our proposition to the customer, both from the product perspective as well as the experience perspective. There are a lot of work that we internally generated. There is still a lot of projects which are internally going on. We are working on more than 50 projects in the company. We are very confident on certain areas. The team, some part of the team members have also changed. New team members are also bringing in some benefit into the system. I think a lot of these things we will definitely continue.
We believe in the long-term story. We believe that we, there are a lot of towns and cities, where still the kind of store that we open is required. There is a differentiation that we have with respect to the market, with respect to what the customer needs. There is more differentiation we are trying to create. Unique differentiation we are trying to create over fashion, over styling, over quality, so that we stand out in the market. There is definitely lot of room for everyone to do business. There are players, suppliers happening from an organized brick and mortar retailer as well as digital retailers. I mean, we have heard about the upsurge in the sales of Meesho or even Flipkart and Myntra.
I think there is definitely lot happening in that market. Lot of market share also has been taken by both the players and I think if it's just the economy which it boots up, we are all set and we are all there. Largely, internally, digitally also, I think we have been focusing very, very high, both in the front-end side of the digital, the customer offerings, how do we motivate the customer to really have a convenient shopping experience, both at the online as well as the shop-of-offline.
I think we have internally also brought in lot of digitalization in terms of creating better processes, in terms of creating better perfection or better forecasting, because ultimately this business is more also about forecasting, understanding the right assortment, understanding the right fashion, getting into the right timing, with the right quantum and the right mindset. I think lot of those works we are doing, which is definitely benefiting the company. We continue with a great as a great employer, we definitely want to attract the best of the talent, retain best of the talent in the tough times for the industry and for the market.
We believe being a great employer definitely helps employees also be motivated in the ecosystem. We continue doing lot of activities on those lines. Our integration with both Unlimited has been very good. Our integration with LimeRoad as well has been very, very supportive, very, very good. This is definitely a lot of change that we are seeing, cultural change pieces that we are seeing with both the organization, and we have definitely respected each other. We have really come down very, very well. Last five months have been good. Definitely, there were a lot of hiccups that the business had earlier when we took over. I think Suchi has been playing an instrumental role.
The team has been really working hard for the last five, six months to try and bring back the existing business on track, bring back the core business on track, then also integrate with the V-Mart team, integrate with this particular office and try and see how do we bring in the team effort in trying to take up the organization and take up the omni-channel approach. That's what we are talking about. Definitely not too many things have happened on those lines till now. We have lot of plans. We are working on those things.
Whatever we have done till now, the way we have launched our V-Mart products on LimeRoad channel, the way the customers are getting excited. The way the teams at LimeRoad sees the opportunity, I'm quite excited, and I believe that there could be a unique value proposition which can be contributed. We are definitely here. We are investing for the long term. We believe that the long-term story is just not going to be a brick and mortar or a, or an online. It is definitely going to be a multi-channel or an omni-channel approach from consumer side, and this is going to remain and be there.
For a sustainable retailer, for a retailer to sustain at a longer level, every retailer has to definitely have a very strong digital arm. That's how V-Mart is preparing ourselves, and we are investing into that business. We understand V-Mart has not been very eager to fund the loss-making businesses because every time our, even our stores which create losses, we have always either shut down those businesses or slowed down those businesses. We definitely believe, and we will definitely invest into these businesses so that we believe in the long-term sustainability of retail and long-term sustainability of our business.
I think those are some of the big work that is happening at our company. Even on the Unlimited pieces, I think we have experimented few things. There are lot of good things which has happened. There are still lot of things that we believed should take and give a response, and we did not really get a get those taken and get those response. We believe there is more communication needed in that market. Our new stores in those markets have really fared very well, especially certain states and certain store lines. The Tier 3 model in Unlimited or in Southern India, there is lot of potentiality. There is lot of room.
There is lot of virginity in that market that we can see, and we would want to focus a little more higher on that. We are excited with that opportunity, and we believe there is lot of growth possible there. We are focusing a little more on those Tier 3 markets in Southern India. We will be very, very focused on bringing down the losses in some of the stores which is not performing or close down some stores if required which we are not able to cover, bring back. That's how we are taking it up. Definitely same-store sales growth is very important. There is a pressure on the same-store sales growth which is not coming.
Yeah, I think we are coming back on track. We have seen a good growth in the last year, in the last quarter. We would want to, and we are seeing some healthy signs also in this current year. Definitely we are not expecting a lot of growth because there are some months in this current year according to the Hindu calendar, where weddings were not there, or there are some months which are a big march which will come in. We will have some almost a neutral first quarter and the second quarter we are expecting. We are expecting a lot of growth coming in from the third quarter, and that's how we see into this month ahead.
I will definitely request Anand to take over from here, give you a brief about the numbers. There are definitely a lot of numbers and there are questions that you would have. We will definitely want to answer all of them. Anand, over to you.
Thank you, Lalit, and good evening, everybody. We've actually given a lot of information in this quarter's investor deck, so I will not take a lot of time. Let me just take you some of the key highlights from the quarter, and then we can, I'll also ask Suchi, to, you know, give us an overview on how LimeRoad is progressing. On the quarter, it has been a good quarter with sales growing at 30%, you know, year-on-year. For the full year we grew at 38% with the same-store sales growth of 10% for this quarter, and 22% for the full year.
This year in fact was also our highest ever sales, in fact, it was also 45% higher than our pre-COVID numbers of 2019-2020 at an overall level. For the quarter, both V-Mart stores as well as Unlimited stores grew like-to-like, V-Mart at 11% and Unlimited at 10%. Tier 1 markets continued to outperform the Tier 2, Tier 3, Tier 4, reinforcing the K-graph recovery that we've been seeing. But as Lalit said, yes, there is some, you know, betterment which we are now starting to see in the smaller Tier markets as well, and particularly around Tier 3. There was good growth in footfalls as well as volumes. We strategically dropped our average selling prices by 5% during the quarter.
The planned decrease in line with our strategy of attracting more footfalls by increasing the mix of lower price products and also some strategic price reductions. As a result of the slight correction in pricing and tilting of the product mix towards more value offerings, the gross margins for the quarter reduced to 32%. While this is lower than the 35% what we achieved last year, but definitely much higher than the average range of 28%-29% that we used to have, you know, pre-COVID. The last year's margins were significantly higher due to the impact of higher price we see taken, which has now been corrected. On the expense side, while the expenses were increased by 52%, they also include the full impact of the newly acquired LimeRoad business.
The expenses for the quarter include an amount of roughly around INR 38 crores towards the spend on the entire online business, including the effects for both vmartretail.com and limeroad.com. Excluding the online business spend, the expenses for the quarter grew by roughly around 23%, which reflects very, you know, well with the overall sales increase. The major impact of the expenditure on the online business is in the marketing expense line, which is an at a overall level 1%, and other expenses which include the technology costs, delivery and fulfillment costs for the online platform. As I had mentioned in the past as well, the business revenue in LimeRoad consists only of the commission earned from sales facilitated for sellers, while the expenses largely consist of marketing, logistics and technology costs.
On a go- forward basis, we are very confident of establishing LimeRoad business as a very strong growth driver for the organization. We remain committed to invest in the journey to reach sustainable and profitable destination. As a perspective, Unlimited has also taken one and a half years to, you know, come at similar profitability. We have similar project plans for turning around LimeRoad, and Suchi is leading that. The good part is that the team is delivering very close to the, you know, the monthly growth plans and whatever plans that we have talked about. Coming to EBITDA for the V-Mart core business, EBITDA for the quarter came in at 7.5%, with Unlimited at 11.9%.
The Unlimited EBITDA does not include any cost allocation of head office expenses, which usually averages somewhere around 4%, and that is why it is showing a bit higher in comparison. Happy to share that Unlimited business is growing strongly, profitably, and helps us achieve good EBITDA at even 20%-25% lower sales per sq ft. That's the strong growth that has happened in the last one and a half years to control the expenditure, to improve the sales per sq ft marginally, and the results are for us to see. The Unlimited team is now working on increasing the sales productivity and once that is also achieved, the figures should start yielding even better returns.
The overall EBITDA for this quarter was marginally lower than last year, majorly on account of lower gross margins and, you know, the expense incurred on LimeRoad. On the CapEx side, we spent roughly around INR 270- odd crores in the year, which largely comprised of expenses on the new warehouse, which is now scheduled to start operations by the end of this month. Other CapEx included spends on 59 new stores and refurbishment of old stores apart from some high, some, IT- related expenditure and the investments in acquiring, LimeRoad business. There have been marginal improvement in the overall working capital cycle due to increase in payable days and, marginal control over inventory. The company opened 59 new stores during the year, 47 in north, 12 in south under Unlimited brand.
We also closed 16 non-performing stores, 13 in V-Mart and 3 in Unlimited. There has been increase in store closure for the last few years, but as, you know, discussed, as a disciplined retailer, we keep assessing any possible non-performance continuously monthly basis to clear out any future losses. Largely the stores that we have closed in the last few years all belong to 2019, you know, and 2020 stores, which actually did not get a very good runway to reach maturity because of the COVID- related impact. Somehow they could not just come back or come to the overall V-Mart level or expected level of to achieve profitability, and that was the reason for their closure.
I think largely the closures have been done with, and there should not be any more significant closures this year. Coming to LimeRoad. I think LimeRoad has shown great potential in the last five months. The number of orders have increased substantially and the revenues have also increased substantially. I will request now Suchi, who's leading the LimeRoad resurgence, to update us on the performance and plans. Thank you.
Thank you, Anand. We're now nearly five and a half months in post-year, and the first full quarter as part of the group. It has been a period of a lot of block and tackle, deep operational operations to stabilize ourselves. We have been able to deliver conditions subsequent related to the deal as planned. With that, the team has also been able to deliver 88% top line growth, as well as delivered EBITDA, which is better than planned, and I feel good about that. One of the key challenges going into this deal, you know, of course is operational, but also team related. We are excited that the team is stabilized. It's not had even a single regretted departure.
Culturally, I think the great thing is that we found voices, right? that keep our cultural differences intact, online and offline together, are two different worlds. Yet, it's great to see that we've found a way of working. There's still a lot of collaboration to do, but the important thing is that we've managed to find the voice as well as high velocity turnaround in actions. I'm also excited that internally the LimeRoad team has been able to build line of sight to infecting deeper metrics on the P&L. That's a good thing. Not everything we try will succeed. That's the reality. That's par for the course.
I love the spirit, and I am glad that the vision with which we went into the deal continues to pervade in terms of actions, and it's only these that will yield outsized outcomes. Overall, a decent first quarter, I feel good about it, but it's still day one and lots to do. Over the next few quarters, we will be building much deeper rights to win this value market. Lalit talked about the emergence and the greater velocity of emergence of this aspirational India.
We are going to double down as our first pillar on category supply, where we will uniquely be able to marry LimeRoad's core inherent strengths in category editorial, trend spotting, curation, data, in terms of projections, together with VM's strong backend, in delivering value pricing, at what I call emerging hashtag Insta trend fashion, at really high quality and value pricing. I think that will be disruptive. It's something we've always wanted to do, and I think that's what's going to be the heart of the category supply thesis at LimeRoad. Second, we will do a lot of deep work, and we already are doing it, on search and discoverability for our users. We think of our users as transcending offline and online, what people call omni-channel.
You know, we've been playing a lot with, of course, stuff like GPT-4, et cetera, which we think will fundamentally have the ability to inflect user experience, right? Both online, in our stores, as well as will have some interesting cost characteristics. Technical product roadmap, data roadmap there, in place, and we'll be able to share more stuff over the next few quarters. The third leg is trust. Online, we will be bringing VM's core capability in terms of pricing, mix, quality, and I think that's an important leg to building trust online. I feel like we are uniquely positioned to do that. Finally, we all care deeply about the P&L, and the team will deliver a stronger P&L. Thank you so much for listening in.
Should we begin the question and answer session? Hello? Should we start the question and answer session?
Yes, please.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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. We have our first question from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, sir, and thanks for taking my question. I have few. Firstly, we've seen store additions of around 43 in FY 2023 on a net basis, and this will translate to around 12% retail area. Even if you take gross additions, it will be around 15%. Historically, we have always maintained a 20% kind of retail area addition. Is FY 2023, first of all, an aberration? Going forward, if the demand environment takes a little more to improve, you mentioned that the next two quarters wedding calendar is skewed. Are we going to go slow in store additions in that, taking that info in account? We also have a net debt of around INR 120 crore. Historically, we've always been at cash. I mean, how are you looking at these things?
I can give some, let me pick up. See, our belief remains similar, and our approach to open up the number of, or additional square feet is similar. Definitely in the last year, this is an aberration where we had to close down. These close downs are not those close downs that we've normally done. Because if you understand that we had opened up literally like 59 stores in the year 2019, 2020. Those stores, some of the stores saw six months, some of the stores saw four months, some of the stores saw eight months before the COVID hit. Those stores did not see a good run rate.
There has been lot of pressure in those kind of stores which we opened up in both 2019, 2020 as well as 2021. We have seen definitely a lower per square foot sales, even negative EBITDA from some of those stores. We are taking some corrective measures. We are working on lot of stores to try and improve those, their performance. Wherever we see some of the stores are not coming into our control, and we are not able to call in the customer, and we have some locational issues or we have some, you know, higher rentals or the EBITDA is not getting committed there. That is why we have taken a call to close down the stores.
The net number that we are speaking about is post the closing down. We will definitely focus on adding not 20%, but yeah, around 15%-16% additional square feet, and that's the model that we have. We definitely don't want to conserve cash because of this, because our belief in the India market, in the Bharat market is for long term, and we will definitely keep investing in this belief in the times to come, even in this particular year and the next year. We will keep adding up our stores, and we will be adding more than the number of stores that we have opened this year, not on the net level, but on the gross level also. I think we are targeting something above 60 stores in this particular year.
That's very helpful, sir. very clear. Second question is on the cash CapEx. We have seen around INR 270 crore in FY 2023. If I just add back the INR 80 crore of warehouse and INR 67 crore of LimeRoad, it is still INR 110 crore kind of CapEx for a gross addition of, let's say, 59 stores. That translates to around INR 2 crore per store versus our historical rate of around INR 1 crore. I just wanted a reconciliation.
Sameer, the CapEx on the warehouse is roughly around INR 109 crores. The LimeRoad spend will be around INR 36 crores. Yes, the balance is towards some automations, technology interventions. Store refurbishments, we actually every year we do some amount of, you know, at least 10-20 stores which go under refurbishment. The per store refurbishment cost usually averages around INR 20 lakhs- INR 30 lakhs. On top of that, there is the 59 new stores that have been added.
Got it, sir. Going forward, these refurbishments probably will continue. The automations and the warehouse is done, I can take that as non-recurring, right?
Yeah. Substantially, yes. Still we would keep incurring some amount of technology interventions. Technology is, you know, changing at such a fast scale that we will need to keep investing at least some bit, but it may not be very substantial.
Got it, sir. I have few more questions, but I'll come back in the queue, let others also get a chance.
Just, Sameer, adding to your point, the warehouse is still not operational. There is some additional investment in there for the current year ended. Which will continue a little bit. You'll see some number coming in this, in this year, on the, on the earnings.
Would that be material?
No. No, no.
Oh, okay. Okay. Bye. Thanks.
Thank you. We have our next question from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Hi, Lalit ji, Anand ji. Good afternoon. Thanks for the opportunity. Let me start beginning with the on-ground reality. I think the quarter gone by, we have seen a demand around festive season. You alluded saying that you are expecting a demand recovery after quarter two, quarter three. Can you give us the roadmap for how we are trying to build? On one side we are building the store network and other thing, and we are also trying to extract the efficiency from the various teams. In the medium to short term, how should we look at and build in the revenue contribution from all these three businesses?
Shirish, hi. I mean, we can't clearly give you an indication that how are we going to build up your available indication. We definitely are targeting a positive same-store sales growth. We are not seeing a very, very high same-store sales growth as we had seen in the last year. The last year was a basic, the outcome of the base effect as well. Definitely we are expecting a positive like-to-like growth from the existing stores towards the mid-single digit or a little higher single mid-single digit number. That's what we should be targeting. We definitely believe we will open up, as I said, 50%, 70% of the retail area to end up.
We definitely have a plan for the online business that we have, because we were contributing around 2%. Now we may be getting towards 3%, 3.5% of our revenue. We could take that to maybe target 8%-10%. That's how I think maybe you could back calculate those and then analyze some and what's the number that you can think of. We definitely see, as I said, we are growing. There's not many competitors that we have. We definitely have implemented those, you know, product strategy where we had a pressure last year where we increased our prices and the consumers went away.
This time we have really worked very hard to bring down the prices. Our ASPs are now lower by almost 7%-8%, almost 10% in terms of sales. We are attracting those customers back who went away from our stores and we, which we didn't see. We will definitely expect those things to come back. When the market comes back, this particular bottom of the pyramid, the mass audience, this definitely is our loyal customer and we have been the best brand providing them, and we still believe these people will be shopping with us.
Okay. That's helpful. On the Unlimited piece, I just wanted to have one question on the margin improvement. Though it is happening that you have done a fantastic job, but in a steady state, what are the things you have done and whether these margins are sustainable or can we say that it will improve from here? What are the things which you have taken the measure to improve this business profitability?
I think, Shirish, as you understand, we went into with a dual pricing approach, and we had a higher, you know, even if the same products are selling in both the area, but we have a little higher priced product in the south India, the same item. That's how we bring in a little extra gross margin in this business. That gross margin, we have seen a good response from the consumers accepting those product line. We have been very careful on our RMR expenses. We have definitely started controlling more on those. That is where we are bringing in. Additional margin we could expect, one, from the same-store sales growth of the existing ones.
How do we bring back the same-store, 85%, 80%, stores which are still not providing positive EBITDA? We will have to work on those to try and improve their EBITDA and then, and take some decisions there. Three, we'll have to really open up new stores. We have plans to open up a little additional new stores in the southern territory, versus the other territories. We will focus on adding more stores in the southern territory. Those southern territory stores, if you understand, we are opening on the V-Mart model. The V-Mart model are expensive, but the margin remains a bit higher. That definitely will help us to give this a little extra, you know, alpha margin. That... all those capabilities should give us a good healthy Unlimited PM. That's how we are targeting.
Okay. That's helpful. My last question to Anand Ji. On the LimeRoad account, we have taken a loss of INR 44.1 crore. Can you just give little more color? Is that absolute loss in terms of inventory write-off or carrying something? Some more color on that. Should we have some more such losses to be incurred in FY 2024?
The INR 44 crore loss from LimeRoad actually includes a one-time expenditure of roughly around INR 12 crores, which we had also highlighted in our last quarter. Which is some, you know. On a go- forward basis, I think, as I explained during my opening remarks as well, LimeRoad expenses primarily consist of marketing, technology, and fulfillment costs. That is where there is a, you know, increasing improvement that we see in terms of how we are able to reduce the cost per order in terms of all these three aspects. That's what the team has been working, and we should see quarter-on-quarter improvement. In the loss numbers, I will not say that, you know, this business is going to turn profitable in one year. I think it is a longer runway.
We had originally guided that we should be looking at profitability only in, you know, after year two. We would want to better that, as of now, I cannot give a timeline. Definitely, we should see improvement at least in the, you know, the loss numbers, in, you know, succeeding quarters.
Would you give some sense, what is the cash burn which we are expecting in FY 2024?
We had guided in our last call as well that we would want to cap our exposure on LimeRoad losses towards to 20% of the overall group EBITDA. That should translate to roughly around INR 50 crores-INR 60 crores, not beyond that.
Okay. Thank you, Anand Ji. All the best.
Thank you. We have our next question from the line of Amit Khetan from Laburnum Capital. Please go ahead.
Hi. Thank you for the opportunity. Anand Ji, you have in the past talked about Tier 3 and 4 not doing as well as Tier 1 cities. If I look at your slide, 11, right? The sales per square feet data indicates otherwise. Is this because the Arvind stores are, the Unlimited stores are muddling the Tier 1 and Tier 2 data?
I think this is what we are seeing as a sales per sq ft, that definitely is both Arvind store as well as the way we categorize our Tier 1. For us, like even Patna is a Tier 1, Guwahati is a Tier 1, Bhubaneswar is a Tier 1, Lucknow is a Tier 1. That's how we see, we have definitely added a lot of stores there in the Tier 1 towns. Certain flagship stores also got added in Kolkata or Bhubaneswar. I think so, we are seeing a little higher sales per s
quare feet there. Largely we are talking about the growth, I think we have been always a player who had been... We all know about the state of economy, and we have always told that the Tier 1s are doing a little better compared to Tier 2 and Tier 3. That is how the Tier 3 have still not grown over the last few years. That is why the sales per square feet has been seen a little muted.
The data shows otherwise, right? Tier 3 sales per square feet is higher than Tier 1, at least in the slides that you have shared.
Yeah. Amit, let me just add that. Actually, yes, you are right. Partially this is combined impact of Unlimited, where the sales productivity in some of their stores in Tier 3 is slightly higher. Additionally, we also have some very good performing stores in Tier 3, traditionally which have also been out of one. Even when you look at, in the same slide, when you look at the FY 2022 data also, the Tier 3 numbers outsmart, you know, every other tier. It's got a stronger base. It's also grown for both the reasons, as I said, one is the UL mix, Unlimited mix, and second is the higher concentration of higher performing stores in that particular tier.
Got it. How do you categorize Tier 3? What, what kind of cities would fall in this?
Tier 3 typically has, you know, cities with more than 2 lakh population. These are typically district headquarters or districts, cities with less than 1 lakh population fall under Tier 4.
Understood. Understood. Lastly on this sales per square feet metric, right, we were doing about INR 800, INR 850 just prior to COVID or maybe a year before COVID. Right now we are at INR 620 overall and INR 650 for the V-Mart franchise. How do you see this, you know, the trajectory of this metric over, say, the next one or two years?
I think it, see, Amit, there is definitely a lot of efforts which are going on. There has been a lot of new addition of stores which we had and lot of which we have performed well. The new addition square feet of Unlimited, at a lower base is also causing those numbers. I think we are inching towards both, the new stores that we are adding up even in V-Mart are seeing more than INR 700, INR 750 per square feet sales coming in. I think we will be back to those numbers maybe in the next two years. It will take some more time to reach to that number.
But yeah, I think we have, that's how I said my opening remarks. We are matching on those fundamental indicators and fundamental levers which will drive all of this, and this is what we are doing. All those newcomers which are coming in definitely attracts consumers' attention also. I think most of that has happened. We will see those numbers coming in in the next two to three years period.
Got it. Would it be fair to say that we would reach our normalized margins only once we reach that 800 kind of mark or can we achieve that with a lower number as well?
No, I think, you guys got the calculation. You, you will understand at this particular rate of store per sales per square feet, how have we performed on the PMN. The moment we increase our PMN even by INR 50 or INR 30 per square feet, how does it come into the bottom line? Most of our expenses are fixed in nature. Definitely any addition in the, in our, in the top line will definitely going to lead us into the bottom line. With the initiatives that we have taken up internally on procurement, on sourcing, on planning, all of those should also better our margins going forward. As of now, we definitely are working to bring back the customer to give them their confidence in the prices.
We are working with a very, very constrained margin. We don't want to give you a very much big hope on those margin lines. Yeah, this will, this should definitely, whatever we are doing internally, will definitely help us to improve those margins in the coming days.
Got it. Thank you and all the best.
Thank you. We have our next question from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi. Thanks for the opportunity. A few questions from my side. Sir, fundamentally, you spoke about engaging with some consultants during the year or last couple of years. If you can share some of the details of the project and what exactly are we trying to improve or optimize, and where are we in that journey?
Because we are technically, as I said, the whole consumer understanding, category understanding, rereading most of those, understanding the market scenarios, understanding the international trends. How do we integrate all of those and then bring into our plans and then, have those capability internally of, you know, designing? I mean, you understand that the when the story we always used to believe that we would replicate the styles of bigger brands, replicate the styles of international fashion, but we never used to have a core internal design team, and this is what we have developed. We have split our merchandising department into three parts, kind of designing, buying, and sourcing, and that's the outcome of the project.
We have created a strong design team with a design head, that's definitely giving a very good edge to V-Mart, where we are able to track similar fashion which the Zaras of the world, H&Ms of the world can do. We are focusing on similar lines. We are definitely curating those with the requirement of our consumers. Some of those pieces have come. We have created a technical and a quality department which is definitely working on strongly on bringing up the quality level, bringing up the technicalities of the product fabric, bringing in innovation there because we just don't wanna increase the prices. We know the raw material prices increase. How do we bring in innovation in fabric development?
How do we work with the mills and the companies, fabric companies to try on bringing those new innovations onto our floor, bring down the cost of the product? How do we— Then we have a sourcing department which is separately created just to work more on the cost, whether it's costing analysis, work on those scalability of the vendors, bettering the quality aspects of the vendors. I think all of those departments and then, the whole planning piece is bringing digitalization into analytics, analytical-based store understanding, analytical-based category store position. It's a lot of work is happening on all of these lines. That's what we will— Apart from that also, lot more is happening internally on these.
Sure. Lalit, how long has been all these initiatives? Has this been implemented?
We've been working on these for the last 12, 16 months. We have started the implementation— I mean, the projects have started now. Some deliveries have started. This is also a transition period for V-Mart Retail. We were not in that kind of mode when the organization restructured. There are a lot of transition which happened. I think definitely the chain management also needs to get adopted. These are pieces which are very intermittent to the organization. We have started some of the adoption. We will see some benefits coming into the, in this AW period, which is the autumn-winter period, which starts from August 6th month. We should see finally most of the initiatives results should be visible in this Q4 period as well.
Sure. Does it also mean that our private label share or strategy will also be in line with this or that is independent of what we are doing on this?
Definitely whatever happens, all of these are doing in the private label. Whatever that we do in the private label pieces, this is how we are going to follow. That's what I'm explaining you.
Perfect. Second question, Lalit. Historically, in your listed history, we have always seen you as one of the most prudent and conservative retailer who has always avoided debt even in the volatile period of demonetization or GST transition or even in COVID. Now, even though it is transient, we have now debt on the book and the kind of investment that LimeRoad will require or our expansion in north and south will require. How do you plan to actually go ahead on this part of balance sheet?
I think you are absolutely right, Tejas, your concern and my concerns are similar. I look at the same way that you are looking right now. We have always believed in having cash in our book, and that's how we have grown. Definitely we believe in the potentiality of the market. We believe there is lot to come for India. At this time, and this is what you guys and your friends have always guided us, that this is the time that we should invest into the market, and we have started investing. We just don't want to be a pure traditional mindset company which is only investing from equity. We definitely want to have a right balancing between equity and debt.
Not that we will focus on building the debt, but, yeah, some, you know, some balancing should always be done. Yeah, we are in the process. We have also invested heavily in the infrastructure development of warehouse. We have that asset which is already built and that is getting built. If there are any kind of pressure that we look at in the balance sheet, we have an ability to, you know, offload those, that asset as well. I'm not indicating that right now, but that's something that we could think of.
Yeah, as of now, we are very confident that our internal cash flow, the way we have designed our positions, our internal cash flows are... We should be positive on those issues with our numbers, and we should be able to take care of most of our expenses internally as well, and most of our expansions internally as well. We are able to do. We definitely have to work hard on inventory management, working capital management. We have to work hard on even our asset management. We are tackling all of those areas, and we have multiple projects lined up to improve on those.
Sure. Lastly, question for Ms. Suchi. So, usually, online businesses are known for a kind of scale first and profitability later, while value retail culturally is designed to be frugal in nature and squeeze out every penny of efficiency possible from the cost structure. Where do you see LimeRoad kind of culturally fitting into V-Mart stencil, A? B, if you can answer also, how do you see ONDC as an opportunity to kind of expedite our journey on going on omni path for V-Mart and LimeRoad both?
Tejas , your questions are in two parts. One is cultural, the other one's ONDC. Look on the cultural component, you know, if you think about the businesses that have done really, really well, right? Globally, you think about online businesses like Etsy, long-tail lifestyle products, they have really high, have really become our changes. I care really about creating value for our consumers, value for our shareholders. Culturally, I think the meeting of minds was around those two values. That how do we win for our consumers and how do we win for our shareholders? I have no doubt in my mind that that comes by generating true cash, true returns.
If you look at our pre-COVID history as an independent company, you will know that, and it has never, ever deeply discounted to grow. We've never really taken inventory on our books. Historically, we've always been collect cash first business. Those are part of the DNA. That is part of the reason why this partnership works. Hopefully, you know, that answers your question, and I see no deviation there. You know, we're all fully committed to continue to deliver that while injecting the truly different cultural DNA that I think we bring to the table, which is tremendous tech DNA, tremendous data-driven D-DNA, opening up the TAM for the group, right? We're looking at the consumer who is really 28 plus, highly fashion, you know, high aspiration on fashion, but still very value-seeking.
That's what we will deliver, and I think you will see us consistent on that. On the second question on ONDC. ONDC, you know, we've looked at it quite deeply. We've done a lot of that integration work already. We don't have a firm view. This could go either the UPI route, which means it could explode and make digital really large in India. It could also be marginally muted. It's too early to call. I do think that it is a great initiative to enable digital transactions and anything that supports that, I think we're fully supportive of.
Thanks, and all the best.
Thank you. We'll take a last question for today from the line of Rishi Mody from Marcellus Investment Managers. Please go ahead.
Hello, am I audible?
Yes.
Yeah, hi. My question was for Mr. Anand. Anand, the way I see it, right, currently the burn rate of LimeRoad alongside the store expansion plans and the short-term debt on books, I think we'll be having to raise any equity if the operations won't turn around. Just wanted your view on any potential plans to raise equity and the [quantum].
Hi, Rishi. No, there's no plan to raise any equity or dilute equity. That's absolutely not on the anvil. I think the way we have structured our plans within the four walls of the plan for next year, we should be able to manage the burn on the LimeRoad because we have already got a cap in place internally. On the stores expansion, the numbers that we are looking at, we've, you know, worked around them. We've only quoted numbers which we can finance and which we can, you know, manage from the current flows. There will be some amount of average short-term debt working capital centralization, which we'll keep happening throughout the year, there is nothing beyond that that is planned.
There are any substantial, you know, headwinds in flows, we may need to restructure some of our expansion plans. That's it. I do not definitely seek any additional capital in flows.
All right. Got it. Thank you.
Thank you. I would now like to hand over the call to the management for closing comments. Over to you, sir.
Thank you everyone for being here. I definitely understand there is a lot of perception getting built over the company, and I definitely want to register everyone this question, what has changed? Nothing has changed. I think we are working on our plans. We are working on what we have communicated. We are definitely working on what is good for the future of retail and the future of the company. We are definitely taking certain risk which is not showing up in the number, and we believe in the long-term story. We will definitely take most of the actions which are benefiting our long-term story, and we definitely are those fundamental cultural companies who don't just look at this quarter- on- quarter number.
We understand there are macros and there are situations in the market. We definitely don't want to get pressurized and nervous on taking certain short-term calls to improve our numbers. We will definitely work and keep working on improving our strength to offer and give a great experience to the consumer, and that's both digitally and physically, and that's what our endeavor is. We remain sure on these lines. We definitely. We could lose patience at times. We would want to be more and more transparent. We would definitely want to keep everyone more informed in the whatever we could possibly do. Yeah, you guys have to also support the team and build your models accordingly. Great. Thank you so much for being there and being confident on the company. We definitely will deliver and keep delivering, to your expectations. Thank you. Have a great day.
Thank you. On behalf of HDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect.