Ladies and gentlemen, good day, and welcome to V-Mart Retail Limited Q4 and FY 2022 earnings conference call hosted by IIFL Securities Limited. 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 and zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Percy Panthaki from IIFL Securities. Thank you, and over to you, sir.
Hi. Good morning, everybody. For this Q4 and FY 2022 results call for V-Mart, we have with us from the management, Mr. Lalit Agarwal, Managing Director, and Mr. Anand Agarwal, CFO. Without any further ado, I'd like to hand over the call to the management to take us through their presentation, and after that we'll have a Q&A. Over to you, sir.
Good morning. This is Lalit Agarwal, Managing Director of the company. Thank you all for being here again. We are seeing good times coming in, and there is definitely a lot of hype, buzz, and crowd, or a lot of traffic that we are able to see in almost all the cities, all the towns. Most of the mobility is becoming normalized, and we are able to see a good chunk of people moving around across cities and across towns, and also people doing holidays, and we are able to see schools and colleges getting opened up. Things are coming back to normal. People are definitely getting even more focused on their work.
People are getting even more focused on what they were not able to do. Relaxing, not relaxing a little bit or not thinking or carving out time for their leisure right now. This is the time to work hard. That's what we've been seeing in most of the cities and towns. Definitely, times are much more dynamic with respect to the job market, with respect to the overall inflation, with respect to a lot of external risks which has got involved post the Ukraine war. I think even the customers or even the entire market is very, very agile, very, very dynamic, very, very reactive, if I would say.
People are very aware of what is going around in the market. They are definitely taking much more informed call in terms of the kind of manufacturing that the vendors should do, the way they should procure, the price they should procure, or the way retailers are opening stores, and then the way the consumers are reacting. The consumers are also not going all out. There is a watchful approach that we are seeing from the consumer end. Largely post the last quarter, I think we got a lot of business back post the Omicron.
It was the first month of January, we saw Omicron dampening the spirit a little bit, and that came back very little fast in the month of February. But it did impact almost 35-40 days of mobility and movement across cities. I think largely in the last quarter, we saw a good festival of Holi, and Holi was celebrated very well for the first time in the last two years. We also saw Eid getting celebrated in the month of May. April was. We were able to see some good crowd at the store. We were able to see a lot of movement in the shopping markets. I think things are coming back.
Overall consumption is getting a little impacted because of inflation. There is pressure on account of inflation in the market, especially people who earn below INR 25,000 per month. They are feeling the pinch of the inflation. There is an additional dent of somewhere between INR 2,000-INR3,000 in their pocket, which is almost turning out to 10%-15% of their earnings. And that is primarily what they would have saved or they would have used for their discretionary pieces. There is some level of, you know, demotivation for that particular lower part, lower strata of the customer segment, and we are able to watch that. I did visit a lot of markets.
I did go to some of these towns. Towns where we are seeing where the GDP per capita income is lower, we are seeing a much higher impact there of this particular inflation. Tier Ones and metros have seen a better results, or we are able to see much more aspirations coming out or much more consumption coming out in that particular cities. Some of the Unlimited stores that we have in Southern India, we also saw or got good results in malls. Mall stores are doing good in these particular times. Overall, what we are seeing is, you know, the K-shaped recovery continues.
The rich is becoming much more richer, and the poorer is trying to feel pressurized and becoming more poorer than he's thought. Psychologically, that's how situation is. Yes, looking at the farm income, looking at the way farm income is supposed to grow, looking at the kind of, you know, harvesting which is coming in, the good monsoons that we are listening, we do expect, you know, that scenario to change a little bit going forward. The farmers would be little happy. Still, to come back to the total inflation, to the total consumer base, it will take some time. We have seen a lot of action in the retail market.
We have seen a lot of organized retail penetrating in those particular territories or most of the areas. We have seen a lot of movement coming in right from all the conglomerates of India. Some of the good interesting models have also come in. Not everything is getting so much benefited and not too much of success is being seen. Yeah, still there is a lot of property acquisition which is happening, and even the online continues to do good. Regional retailers have been fairly growing. Some of the retailers, as we said earlier, some of the retailers have really mellowed down, and they have stopped opening or have closed some stores.
There are a few other retailers who have still continued to open more stores and are still continuing to open primarily in the northern part of India, primarily more in Uttar Pradesh, Bihar, is what we see some penetration coming in from their side. Largely other retailers, the larger retailers are being seen across India, whether it is South India or Rajasthan or Gujarat. We are seeing all kind of retailers coming in. Most of the retailers are also sizing between 6,000 sq ft-10,000 sq ft. That's also good that you know, this model has got fortified, this model has got verified, and this is what everyone wants to play on.
I think everyone is feeling the pressure of, you know, if we compare pre-pandemic level, there is a quantitative growth. There is an inflation in the product lines that we sell, as we had already told. We are witnessing almost 17%-18% of, you know, higher ASP over the last two years. That is also impacting the customer to a certain extent. You know, the product are looking little costlier, looking a little more, you know, pricy. But yeah, we are trying to work on our manufacturing side. We also took up the price rise as it is.
Yeah, we are doing a lot of small schemes, promotions on the lower price point products so that we are able to retain the lower customer base. That's what we are trying to understand, because if those customers have to shop, their pocket can't get hurt. We will have to. We have done enough work now to try and, you know, penetrate into that customer base. We have also seen an additional jump in the RedBill side. That is also giving us a sense that, you know, people who have some money in the pocket are coming to buy and are coming in good numbers. We are also seeing good loyalty scheme coming in.
Yeah, there are a few people who have lost some part of income in the past, either last two years of pandemic or even this particular time, is struggling to shop or struggling to buy more. Effectively, we still believe the consumption story will come in, will continue. This period where the media is, you know, shouting a loud voice on, you know, inflation and lot of work. People are anticipating a risk on their pocket, risk on their incomes. That is being seen. People are not going all out to shop, and especially the smaller part or the lower part of the strata. That's how it is.
Overall, I think the job market, as we said, is also very boiling up. The employee levels are for us, we have been able to retain, but yes, the pressure of attrition is still there. There is a lot of movement which is happening in all the merchandising, in the digital, all of those sides. But yeah, we have continued and got really the best place to work awards. We will try and do our best, whatever we could do to attract talent and retain talent. That's how we are looking at it. Overall, our CapEx plan continues. We will open up, keep opening up stores.
Our confidence on the market remains very good. Unlimited, we have been able to do fairly a good acquisition. Unlimited has been fairly good both in the step of maintaining its number on the P&L side as well as its revenue. We have still not been able to see a large growth there. Yeah, a lot of V-Martized products have been launched in those stores. We are able to see a change in the customer profile. Customers are loving those products. A lot of products are being loved. Some of the products that we are also experimenting, wherein we are trying to launch it to the market.
We are doing a little more higher inventory so that we are able to do all those pilot understanding of that market, what will work and what will not work. We'll continue to do all of that. Yeah, I'll first of all ask Anand to take you through the numbers, and then we can talk over the question and answer questions. Over to you, Anand.
Thank you, Lalit, and good morning, everybody. It's lovely to be back with everyone after almost a quarter. It's been a very good recovery this quarter, and with a fresh new financial year ahead of us, we really look forward to an exciting next phase of growth for V-Mart.
First, let me take you through some of the key highlights from the quarter, and then we can open the floor for questions. As far as the quarter is concerned, quarter four traditionally is the smallest quarter for any year, and this year also not very different. With a slight resurgence of the COVID Omicron variant, there was a slight impact in few markets, particularly in Karnataka, Tamil Nadu, Jharkhand, Bihar, apart from some isolated areas in other states, which led to small disruptions here and there. The silver lining was that the impact was curtailed in the fag end of January to around mid of February, sparing the big festive period of Holi in March.
As such, we could see good traction in sales as customers also came out in good numbers after not being able to celebrate any festivals or occasions for almost two years. The other big impact, as Lalit also mentioned, was the significant increase in raw material prices, particularly cotton yarn, apart from the inflationary trend in all parts of the value chain.
As a result, we were forced to pass on the full increase in cost to the end customer, and our pricing increased by almost 15%-17%, if I compare over the, you know, the last two years. The inflationary pressure on one hand made the disposable income smaller for the customers, and also made our products slightly expensive, leading to a marginal decrease in quantity. Overall, I think we've seen growth, because we also see a lot of growth coming in from South, getting added.
Thus our comparable V-Mart ASPs for apparel almost grew by 17% in the quarter, while at a company level it might look, you know, abnormally high at around 26%, keeping in mind, you know, the base impact of last year, and also the addition of the Unlimited business. On a total level, sales grew by 30%, supported by the 73 new stores from South India, which contributed 16% to the sales mix for the quarter. The footfalls grew by 10%, with average bill size growing by 17% for V-Mart stores, while at a company level, the overall increase as I said was at 26. This ABS increase should remain marginally higher for the South stores, for some time till we get the full integration of inventory done.
You know, in any case, the pricing will be slightly higher in the South India stores as we try to keep slightly differentiated merchandise and also slightly differentiated pricing to take care of the higher operating cost structures in South. Now, on the margin side, with increased raw material pricing, the company decided to pass on the full impact onto the customer, resulting in almost negligible impact on margin so far. Lower discounting and promotions, as you know, we've also stated in our last few calls, the inventory position remains very healthy because we have very less carried forward old inventory.
Also, you know, the USA period was not a very strong period because there was a fear of Omicron coming in, so there was not a big amount of discounting that was required or we did. As a result, you know, the margins remained quite healthy. Also, as a mix, South India operates at a slightly higher margin profile, and therefore the gross margins remain quite healthy at around 34.9%, which compares very favorably with the 30% of, you know, previous years. The high increase in margins for quarter four is actually not really sustainable in the long term.
We, as we have always maintained, will pass the gains, if any, to the customers by using it to offset either the inflationary cost pressures on the sourcing side or reducing the, you know, the selling prices in future. In any case, the gross margins for South India, at least for some quarters or at least for a couple of years, will be 3%-5% higher versus the rest of India with differentiated product offerings to offset the higher operating cost structures there. Coming on to the expenses side, almost all costs faced significant inflationary pressures, and they continue to do so.
Rentals in many cases are higher from last year owing to, A, the higher cost of South India, you know, rental structures, and also the reduction in rental concessions which we availed during previous years. All COVID concessions are now over, and the cost structures are now back to normal at all levels, in fact with higher inflationary trends. Expenses also include a marginal OpEx investments towards expansion of the online business, which has now reached 2% run rate in the revenue share. As a net summary, quarter four ended with an EBITDA of INR 50 crores, which was up 50% over last year. While for the full year, the EBITDA came in at INR 204 crores, which is up 56%.
Ind AS 116 lease related adjustments had a negative impact of INR 13 crore for the quarter and INR 38 crore for the full year, thereby reducing the net profit for the full year to INR 12 crore. The board, as we already disclosed, has proposed a dividend of 7.5%, which is subject to approval by the shareholders in the upcoming AGM. On the inventory side, we remain quite comfortable. While the overall inventory looks marginally higher, because we've been upstocking for the upcoming festive season. As Lalit just mentioned, we also celebrated Eid for the first time in South India, and April, May, June are big season months for us, so we definitely upstocked for that.
Strategically, we have also put slightly higher amount of inventory in South as we are experimenting with new concepts. The stores finally are larger. We have been expanding on the kids' portfolio and also expanded the men's range, particularly around T-shirts and comfort wear. The inventory days came in at 110 days, majorly due to lower operating days and sales in the first half of the year, and also lower days of operations for Unlimited stores. We will definitely target to bring the days of inventory back to around 90, if not lower, at least in this financial year. As I said, I think the inventory remains quite healthy, also because that we did much lower buying in 2020 and also in summer of 2021, because of COVID impact.
That should help us in any case as a tailwind as far as the current, you know, working capital situation is concerned. Cash positions definitely remain very healthy. We remain debt-free with almost INR 750 crores of cash assets. CapEx for the full year was at around INR 149 crores, which included the acquisition of 73 stores in South and net addition of 39 stores in the other parts of India. Apart from making major investments around the new warehouse which is coming up. On the online side, as I said earlier, we've already reached almost 2% of run rate on the monthly revenue mix, which is a very promising sign. Definitely there are pressures as far as the customer acquisition costs are concerned.
They remain, you know, to inch up higher, particularly because of the increasing privacy laws on all social media platforms. We followed a mixed approach. We promote a lot of traffic on our own apps, but while at the same time penetrating marketplaces, you know, like Amazon and Myntra. We will continue to invest behind the online initiatives bit bigger as we hope to achieve at least 5% revenue mix in the coming years. On the Unlimited side, I think, as Lalit also mentioned, we're seeing good progress, and we are quite happy with the progress. Things are going exactly as per plan.
In fact, better than planned because we are seeing much higher traction on the mall stores in these inflationary trend times. The mall stores are definitely showing significantly larger traction of customer footfalls and ABVs and transaction sizes. We've also signed up new properties in South, and we've also decided to continue with the Unlimited brand in South, which has happened after a much prolonged market research and survey. The formal decision is yet to be taken, but in all probability, we will definitely want to continue with the Unlimited brand. In fact, some of the new stores which we are now planning to open in the next couple of months will be opened under the Unlimited brand in South.
On the new stores, you know, we continue to build up the pipeline for the new store openings. As we have maintained in the past, we will continue to grow at the historical rate of 20%+ annually, and we look forward to beat that number. South, as I said, is doing quite well. We've seen, you know, good traction on the monsoons, and the pre-monsoon realization should also come in quite strongly. There is a transient challenge because of, you know, the monsoon situation as well as the economic downturn, especially in, you know, these smaller towns.
We expect the larger economy to do well and stabilize in the coming few months, and thereby our aspirations for the full year growth numbers stay intact. On the CapEx side, we remain committed on the plans for the year. As I said earlier, we are also, you know, planning to set up a new warehouse on which work has or just about to begin, and which should get completed by the end of this financial year. I think that should help significantly in our supply chain, bettering our supply chain and also our online operations. That is all from my side. I will now request the moderator to open the house up for questions, and then let's take it from there. Thank you.
Thank you very much. We'll 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'll wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Aliasgar Shakir from Motilal Oswal. Please go ahead.
Yeah. Thanks a lot for the opportunity, sir. Sir, just first question on, if you can share, how was the LTL growth for V-Mart in fourth quarter? You did mention that festive season was, you know, much better this time. If you could just share some detail on, you know, 1Q FY2023, has it turned positive, you know, impact of COVID inflation, looking at all of that, you know, I mean, how should we see the situation in the coming quarter?
Sorry, we did report a positive like for like in the March quarter. Yeah, the base number was quite small at that point of time. Then because we've seen like from pre-COVID level or even FY 2021. If I look at pre-COVID, it was positive by 2%, but if I look at from FY 2021, which we thought was a better quarter, it was negative 3% at that point of time. In the current times, I think, as I said, April was good, but still the festival has moved ahead. We have seen Eid sales coming in the month of April versus May in the last year.
Overall, accumulatively, if we see, we are still not a positive like-for-like growth right now. We will still wait because there are a lot of movement in the festival and everything is. We'll expect some bit of respite coming in in the latter half of the quarter.
Okay. 1Q FY23 like-to-like we are comparing with 19?
Yeah, yeah. Right now, for all those practical purposes, I am seeing 19 as a base number because 20 and 21 were both washed out in April and May.
Right. Even for 4Q FY2020, do I believe, right? Because otherwise if I see, I feel there is a decline from last quarter as well as 4Q FY2020. Correct me if I'm wrong.
Yes.
Okay. Just a few questions on Unlimited. You know, I understand we are not in a position to share, you know, numbers on the profitability for Unlimited. If you could just share some color at store level portfolio, you know, is it positive if I say on pre-Ind AS 116 basis? You know, Anand indicated that we are acquiring properties over there. If you could share some color in terms of, you know, what kind of store additions we should expect in Unlimited portfolio? Just last thing there is old inventory that we were carrying for Unlimited. Has that been phased out? Are we now, you know, largely using V-Martized or by when should we expect that to happen?
See, as I told, Unlimited numbers have bettered, and we did not see a lot of growth coming in from 19 numbers in Unlimited in the last quarter. Still, we were positive in EBITDA, and we did keep positive EBITDA. It will be difficult for us to share the number actually, but we were positive. Most of our stores were giving a good response. There were also few rental discounts that we had received also in the initial part of the quarter maybe. Otherwise also, I think we will hit positive EBITDA, don't worry about that. On the other side, I think we are opening up, we are planning to have the zone-wise expansion plan similar as other zones of V-Mart would have.
That is between 15%-20% addition of the base number that they have to target. That's how we are focusing on adding stores in all the zones. That is how South zone has been also given the target. We should expect somewhere between 10-12 stores in a year, coming from South.
Got it.
Third point about inventory, I think we never owned the old inventory. We took it on. We definitely did not give back. We tried to sell that inventory on an SOR model. That also, I think we have been done with that, and we have now we are almost 80%-85% of our inventory is now the new inventory which is coming from the V-Mart. It is going to cover. Till the last quarter it was around 60-65%, but now it is, it will be around 85% of the inventory.
Got it. Excellent. Just last question on raw material costs. You've taken 15%-17% increase. Has it absorbed all the price increases or do you think if the, you know, raw material prices don't cool off, we'll have to take any more further price increase?
The last season when we planned for our spring/summer, I think post that also we have seen some price rise which has happened. Now looking at the scenario, it may not continue to rise. We'll not take another price rise. We will definitely not want to impact the customer more. That's at the end of the price rise story. We will want to now work on the backside to try and reduce the cost and try and work on the efficiency so that we are able to, you know, offer the customer the same product at the similar price now which we have already done. I think further going down we should not expect a lot of inflation coming in the commodity importantly.
Understood. We don't even expect that to have any impact on gross margin, right? Even without a price increase.
Don't worry, we'll take care of all of that.
Thank you so much, sir. This is very helpful.
Thank you. Operator, please press star one to ask a question. The next question is from the line of Chanchal Khandelwal from Aditya Birla Capital. Please go ahead.
Hi. Good morning. Thanks for the opportunity. Really, on the footfall growth. If I look at the footfall growth, the footfall growth is 10%. I'm just trying to understand, is it a thing to be concerned about? This footfall growth is including the Unlimited or this is
This is including Unlimited.
Okay. Is this?
Chanchal, we are definitely seeing a lower footfall. As I said, there are few customers which we saw which we are realizing that who are below a certain strata of economy. We are not seeing them at all coming in, or we are not seeing them in the market also. There is some impact which has happened to these household with income level. That is one stress which we have and that is something which should come up.
I think, you know, as we will improve this can come back. The only other point to understand, really is that, with competition heating up, is there some footfall which is going to the competition also? Is it a concern? Because there are two schools of thought. One is the, all the smaller players have died down in COVID, so you should benefit. But at the other place there is, Zudio scaling up almost 100 stores per quarter, per year. So any concern the competition or you think it's just that inflation is just taking a toll?
No, no, definitely competition is stretching their arm. There will be some footfall which will be attracted, some footfall which will also be generated because there are still a large audience which is shopping on a unorganized market which has not come to the organized market. All of these retailers when they come in, they take away some footfall from your existing basket and they also add up some footfall. Finally what happens is the new store always drives a charm for the customer. They will want to come in to go to that new store. It is all about in the later stage how much are they able to retain or how much are we able to pull up.
It all depends upon your experience, the kind of experience that you give, the product experience that you provide, the prices that you provide and the fashion and the quality that you provide. It is a long-term game, Chanchal. Definitely whenever some new competitor, and that we have been seeing over the past, and whenever there is a competitor which opens up they will attract some footfall. They will definitely take away some footfall share from our stores, but also give back going later.
Sure. Just one last question from my side. The Unlimited, the average selling price is much superior. Now, any learning from Unlimited, any brands which is there in Unlimited which you want to get to V-Mart? Anything which you want to implement in V-Mart for your average selling price to improve or for your margin to improve?
Chanchal, yeah, definitely, there is a lot of good things that Unlimited also have, and we have taken up some good things. We have already rolled out also in our V-Mart store. Still we are watching out for other things like as you said, the partner brands. We have partner brand business which we thought was not going good, but now also if we focus on those, there are also good responses coming in, good performance which we are seeing from those brands. We are watching it very closely. If there are particular product lines or if there are particular partner brand which is affordable to our market base and our customer base, because our average size here at V-Mart is 8,000 sq ft. We also have some stores where we have kirana offerings.
We also have cross merchandise, which is a GM merchandise, Omart and all, which is there. The space is a bit constrained at V-Mart, so we don't have too much of space to allow every other brand to get rolled up. We have a very rightly sized model, so we don't have that extra ability to add more brand. We'll keep prioritizing and we'll keep seeing it together, so that we are able to use the benefits of both the strengths.
Sure. Thank you. Wish you all the best.
Thank you.
Thank you. Next question is from the line of Nihal Jham from Edelweiss Financial Services. Please go ahead.
Yes. Thank you so much, and good morning to the management.
Nihal, sorry, may I request you to speak little louder, please?
Apologies. Am I audible now?
Yes.
Yes. A couple of questions. Lalit, you recently mentioned that you have obviously been to multiple stores during this quarter. While you did allude to the fact that, you know, there is an improvement that is expected going forward, but even the recently concluded harvest season has seen the benefit of, you know, strong prices for farmers, along with obviously inflation also continuing. Between these two opposing forces, what is the kind of, you know, feedback you're getting on ground in terms of, is it that, you know, the improvement in farm incomes is expected to percolate into higher spending or the inflation will have an overall impact in terms of consumer spends?
See, I mean, definitely, as we all understand in India's climatic condition, the harvest income is there. Definitely, the harvest income is there. Right now, till now they have not got the money of that harvest income. They're still getting the money, and maybe they'll start consuming it in the June month. That's what we'll expect, something coming in. But that also, you know, in India, people have a little inconsistent trust or not a hundred percent trust over the weather. So they will definitely want to retain some part of it because they are already feeling the pressure of inflation, which is coming in. So that, in India still the farm income and the rural customers, even if they get some income, they immediately don't come out and spend heavily.
We will see still some setback coming in from the inflationary pressure, because not everyone is a farmer who comes to our store. There are large audience which is also people who work for entrepreneurs and work for the entrepreneur, people who are employment generator. Still, I see this inflationary pressure as a huge pressure on their kitchen, on their home. Then beyond that I also discussed, you know, they also have got some EMIs now for the laptop or for the mobile phone that they bought because of the kids education. That is another pressure that they have. Still, I think there will be some liquidity pressure on those families for the next 3-6 months. That is what my expectation is.
Understood. That is helpful. The second question was that you've obviously given the ASP out for Unlimited at around INR 600. Now, the question here was that what is the thought in terms of the ideal ASP you want to bring Unlimited to once you have complete control over the collection? The second question was that going forward, is it right to assume that Unlimited will be the brand for those southern five states and for any other state, we will look at V-Mart as being the brand? Or are we gonna look at both these brands coming into some states? Just the thought on how these two brands will now play going forward?
Nihal, as of now, I did visit a lot of stores in the Southern India, and I did also interview a lot of customers. We are also still conducting a market research wherein we are trying to understand and do it structurally. This is an overall brief that I gave from my store business and what I understood that there is a good loyalty of the customer as of now, and there are a lot of competitors in the market which is coming up and which is trying to create an impact.
This particular brand and these kind of stores have seen a change, a three times change because we had mega store in the earlier part of the story, and then they did Unlimited with a different version, and now they are doing it with a different version. It's now a change once again the brand name. It is too much of pressure on the team and on the customer to try and understand what exactly this store try to offer. That is why we've decided right now and for the period we will continue with the Unlimited brand and we are seeing good traction coming in. It's all about the product lines that we will change and we will try to offer the same.
Yeah, as of now, South India is what we are trying to contain the Unlimited version. No one stops us from thinking even if we have a good opportunity in the same market where V-Mart is operating, why not open up that? Right now I'm not committing anything on those lines. There is an opportunity that also can be explored, as the question was on, you know, if you want to, like Chanchal asked me on the brands, if you want to promote such kind of brands or smaller brands which are giving much more value for money, how do we try to convince the customer who are getting a little more aspirational? That's the whole thought process that we will build.
As of now we are continuing with V-Mart at the rest of India and Unlimited in the Southern India.
Some of the visa have to issue all the time. Thanks.
Thank you.
Thank you. A request to all the participants, please restrict to two questions per participant. The next question is from the line of Percy Panthaki. Please go ahead.
Hi, sir. Just wanted to understand what has been the mix effect this quarter on a YOY basis? Basically what I'm looking at is your average selling price would have two components, right? One is the price increase itself, and second is the mix of the products that sells. The mix effect is it positive or negative, and to what extent?
Hi, Sakshi. Anand Agarwal. Yes, you are absolutely right. The ASP is definitely a mix of, you know, the price impact and as well as the, you know, the, merchandise mix. If I compare it to last year, if you recall the last year, ASPs had gone down because the customers had started to slightly downgrade in terms of buying more comfort wear rather than occasion wear. That is a trend reversal that we have seen very clearly, right from the beginning of, the festive season around Diwali. That is coming in very strongly in the ASP mix as well. If I, you know, break down the ASP increase of roughly around 26%, actually it has three components. One is the price increase that we have taken.
Second is the merchandise mix, which has shifted in all parts of the country, including in West of India, that is the north part of the country as well as the south part of the country. Third is the base impact of, you know, the Unlimited merchandise which only takes sales at a higher ASP. The price increase was roughly around 17% on a simulated basis, if I take the full year impact. You know, the balance 7%, 8%, 9% is coming in from a mix of the merchandise as well as the base impact from South.
Understood, sir. Secondly, can you just tell us what are your store addition targets for FY 2023?
I think we should definitely look at a healthy store addition. We've always maintained roughly around 20% on the base, and I think we started around 370-odd stores. I think we should definitely look at somewhere around 60, of which at least 10-12 should come in South, because we work on a zonal structure and we have four, you know, five zones now in the country. Every zone has a target to add at least 10-12 stores, and that is what we should definitely look at.
You're right, sir. That's all. Thanks, and all the best.
Thank you. The next question is from the line of Bharat from ICICI Securities. Please go ahead.
Yeah, thanks for the opportunity, sir. I had a question on your CapEx. Like, it would be better if you could provide us the CapEx breakup for FY 2022 and also for FY 2023, and how much have you spent on a warehouse and what is remaining on the warehouse and the other breakup for the CapEx? I'll ask the other questions later, sir.
Bharat, in FY 2022, roughly the INR 149 crores of CapEx that we have done includes three components. One is the acquisition of 73 stores, of which, roughly around INR 57 crores-INR58 crores was in terms of the store fit-outs for Unlimited, excluding the security deposit, et cetera. Then there were 39 stores that we added in north, which added another, roughly around INR 40-45 crores. Then there were some store refurbishments of around INR 10 crores-INR 12 crores, and the balance amount was towards, you know, the land acquisition cost for the new warehouse, roughly around INR 35-odd crores. For the next year, I think the breakup would be in two parts, largely.
One would be around the CapEx on the new warehouse, which I anticipate the spend in this year should be around INR 70-80 crores. We should be looking at adding around 60-odd stores, so that should take in around INR 60 crores of CapEx on the new stores. Plus there would be some store refurbishments of around INR 10-15 crores, apart from minor, you know, investments in digital space of around INR 5-10 crores.
Okay. Sir, what we see is like that the inventory days are higher. Do we see a risk of inventory, given that as you say, the demand is lower, so is there any inventory risk over there?
There definitely will always remain an inventory risk, but these are, you know, two slightly different unrelated things. The inventory days for previous year are higher because of the, you know, the ASPD or the average sales per day being lower because the first half of the year was at, you know, subscale because of the, you know, I mean, you know, COVID impact. On a full year basis, I do not anticipate the days of inventory to remain in the high range. We've traditionally operated around 85, 90 days, and that is what we will definitely try to bring it back to.
There is definitely some amount of risk, but I think the kind of artificial intelligence-based replenishment systems and the, you know, the supply chain planning systems that we use, I think we should be fairly secure in, you know, a situation to control inventory wherever, at a short notice it is required.
Sir, if I may add one more question, like it is about the rental expense. How much of our rental concession have you got in FY 2022? This figure of INR 134 crore, is it including the rental concession or it is excluding that you have mentioned in the PPT?
That is excluding the rental concessions. This is the net. I think the rental concessions in last year should be around
INR 13 crores-INR 14 crores, not more than that, because the major concessions came in the previous year. In the last year, there were hardly any systematic disruptions or announced lockdowns, so therefore, we could not get a lot of concessions. I think the landlords also have become very wary of giving any more concessions.
Okay. That's it from my side. Thanks for answering the question, sir. Thank you.
Thank you. A request to all the participants, please restrict to two questions per participant. The next question is from the line of Tejas Shah from Spark Capital Advisors. Please go ahead.
Hi. Good morning. First question, so first,
Sorry to interrupt, but your voice is breaking there. Could you come in a better reception area?
Is this better? Hello.
Yes.
Yeah. Hi, thanks for the opportunity. A couple of questions. First, between you at different point of time in your comment, you spoke about competitive intensity and also some silver lining on consumer sentiments. There also you mentioned it's a mixed bag for now. As we look forward to FY 2023, between competitive intensity, which you mentioned in some pockets it is going down, some pockets it is increasing, and consumer sentiments also you are hopeful about agri and other drivers there, what are you more hopeful about and worried about in FY 2023?
Tejas, this is largely about the consumer spending power. We are only worried about that because the inflation is throwing big numbers and people are a little worried about that. That is a big worry which is speaking about how will a customer buy and because the wages have not gone up their incomes really have not gone up. There may be some respite coming in from the farm income which can get translated, but still, I don't know, will it lead to more inflation. That's a question that every economist is finding it difficult to answer. We don't know when it is cyclically correct, and that's the biggest worry that we have right now.
Sure. Largely theoretically, in an inflationary scenario, consumers become more value-seeking and the kind of cohort we cater to and are positioning also, shouldn't we be beneficiary of an inflationary scenario because people downgrade and then we recruit more customer from above the pyramid also, and obviously we recruit from unorganized as well, and what we do naturally.
Tejas, I mean, we also thought this could be right, but right now in this particular scenario, there are two things which is happening. If you look at the job market churn, and the job market churn is actually people who have been able to earn greater than 40,000 or 50,000 and who are in the job market, we are seeing a great churn, and then there we are seeing almost every person is able to earn additional 20%-30% from this job change. Then that is creating a large, you know, drive within that particular base of customer who is above 50,000 earning group member. There, I did not see that coming in.
Yes, that is how we are seeing Tier 1 story building little better, where we are able to have more customer of such base. Largely our customer base lies between, you know, 15,000 to 35,000. At that level, we are seeing some pressures coming in.
Sure. Lastly, any comment or any observation on competition emerging from online value formats like Meesho? Are they already competing with us in the same cohort or are they still different?
Sure, I mean, definitely this is another new competitor which has come in and not that we are able to find a lot of people talking about it. We did a survey in the market as well. Also we did ask questions. In bigger cities and bigger towns, people are aware about that and people have seen that. Still, will they buy again from someone who already bought from those sites? We had a question asking them, will they buy again from those sites? Their response was very clean. I think they did not have a great experience about the quality of the product. I don't know. Are those sustainable mechanisms?
There are these kind of winds which come in, and we will have to just stand by our own principles with our own value systems, with our own qualitative offering. We will win over all of these. These are going to come in, these are loss-making models. They'll try to bring out all kind of tactics in the market. I think largely customers understand where they need to trust on, and there is a cost to service every kind of model which is sustainable.
Thanks. Best wishes, Lalit sir.
Thank you.
Thank you. The next question is from the line of Jignesh Kamani from JM Financial. Please go ahead.
Hi, Rajeev. Hi. This time there is a writeback of shrinkage close to around 0.6% versus 1.31%-5% shrinkage earlier. Our gross margin and EBITDA margin is increased to the tune of 1.5%-2% because of the reversal of shrinkage?
Hi, Jignesh. Yeah, partially you're right. There are two impacts. One is definitely there's a reversal of you know shrinkage provision in the current quarter, and we follow a very consistent and time-tested shrinkage provisioning policy. As I said earlier during my remarks, opening remarks, that we have a very good quality of inventory, very healthy inventory, and because we did not have a lot of old stock, therefore there is no significant additional amount of provisioning which is required, and therefore we see a small you know reversal in the current quarter, which obviously will lead to a small improvement in the gross margin.
Having said that, also because we did a lower amount of, you know, discounting and promotions because the market did not require that also contributed to the positive upside on the margins. The third part on the margin also, as I said earlier, was the mix impact coming in from the South India stores, where the margin structure, the gross margin structure in many cases designed to be 3%-5% higher. Therefore, the combined impact of all these three factors gives us an upside on the gross margins.
Out of this, can you quantify South India impact will continue for next, I can say at least one or two year or more. The other two will, you say, normalize over a period of within the next one or two quarter. Can you quantify the impact of this?
No, I will not exactly quantify, but I, you know, I think, as you rightly said, the first two, which is the shrinkage provisioning as well as the, you know, the lower discounting will get normalized in the coming months. The South India impact will get normalized over a period of next one or two years.
Okay. Second thing, you mentioned that right now inventory is elevated because of two. In South India we are expecting with multiple SKU, and in North India we are stocking up for the festival. Now, since festival is over, how is the current inventory level in North India?
The current inventory level is okay. I would not say the festival is over. As Lalit just mentioned a few minutes back, we are anticipating strong demand in the month of June because the harvest season is just about to get over and money from the crop realizations should now start you know coming in. We've not started to down stock. We have not rationalized. Yes, we are comfortable on the inventory as I speak to you today.
Thank you.
Thank you. Next question is from the line of Prashant Kutty from Sundaram Mutual Fund. Please go ahead.
Yeah. Thank you for the opportunity, sir. Just extending the question in terms of you spoke about the rural side of it or the Tier 2, Tier 3 markets being under pressure in terms of wage growth and all. Just want to understand as we're probably moving into the quarter in terms of maybe the March month or maybe the April months and all, are those things kind of changing? Because we also are seeing that wage growth or probably the rural income is likely in better stead, or at least the narrative is slightly changing in favor of rural. In that sense, are we seeing any uptick measures over there in terms of demand? That's the first question.
Prashant, I fear still we have not been able to see noticeable change in that because in the last month, which is April as well as May, I mean, what we saw is the impact being a little more higher and the impact of inflation is also coming up a little more higher and to the ground. The impact because people all had you know the old inventory and people had the lower price points inventory which they're now it's lower and now people have to sell those higher priced inventory only. I think still there is an impact which is continued.
Government is trying to bring in some action in terms of bringing down the fuel costs or the tax rates and stuff. There will be some impact which should be seen overall coming up. Yeah, it will also depend upon how the agricultural price remains. If that remains bullish, we should be able to see that impact coming in.
Just an extension to this, sir. One on the other side, you also spoke about the urban growth rates are much more better in that sense. The fact that in the market typically we're talking about income levels being impacted. We are also seeing lot of other retail formats actually talking about Tier 2, Tier 3 markets doing well for them. You really think it's only a function more of about probably wages now kind of coming back or is the competitive intensity kind of in general heightened up? Because just on the urban part as well, has Unlimited been to your expectations because those are more urban centric or let's say more Tier 1 centric segments.
Has that been at least in line with your expectation? Because when we do the math, please correct me if I'm wrong over here, we see that there's been no SSG growth if I look at a two-year basis, despite seeing almost an 8%-10% kind of increase in price. And if you look at the footfall number also, seems to be lower. Just asking if not, probably V-Mart is Unlimited at least showing those signs.
Yeah, I mean, I think we have on our entire commentary, whatever numbers that we have projected for Unlimited, we are doing better than that. Those people are achieving their targets. As we also said that, especially bigger cities and especially malls have done much better. We are able to see that effect kicking in. There are multiple facts here that there is also a fresh collection which is being launched. There is also a different kind of products which are being launched, which is more V-Martized product. There is also an effect of that. Plus existingly, those economies have done better. I was just in Bangalore till yesterday. The whole IT crowd is coming back.
The people are now in the market. People are now trying to meet with one another. They're trying to party. Things are moving faster in bigger cities, metro cities and Tier 1 versus the Tier 3. I don't think Tier 3 will remain far away from this. They will also pick up the same thing and it is going to be a contagious effect which will bring us benefits of the consumption.
Sure. My last question, sir, is on the-
Sorry to interrupt. Can I request you to come back, please?
Sure. Thank you.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Capital Limited. Please go ahead.
Yeah. Hi, Lalit and Anand . Good morning. Thanks for the opportunity. Sir, indeed it was a very good performance in last seven, eight months we have seen for Unlimited. I'm on slide 10, where you have given the numbers. Just wanted to understand what is the Unlimited sales per sq ft before acquisition and maybe you want to see the exit of March 2022?
Shirish, where are you? I'm not able to understand. What is this you're asking, Unlimited sales per sq ft?
Yeah. You have given on slide 11, sales per sq ft in last year was INR 530, which has moved 5%, and which is now INR 559.
Mm-hmm.
I'm asking specifically for the Unlimited store before the acquisition and maybe exit March.
Before the acquisition, I don't know how to compare that. It will be very difficult for us to compare before the acquisition because there was pandemic and stuff. If you look at all of that, I think we have done a slightly better there. I would not. Even the last quarter, no, we've not done better. We've still not been able to meet pre-pandemic level in the last quarter. We are able to do that now.
Yeah, I got what you're saying. If the growth overall for the company is 5% up, I just wanted to understand how much higher of 560 aim for Unlimited. Maybe if you have that number handy or maybe I'll take it later.
No, I don't have that number handy with me. Unlimited number
Second question. Second question on the slide 10. You have given the FY 2022 conversion rate at 63%, and for the quarter it also remained at 63%. I think previous participants did ask this question. What is it that top two, three things? Because if my memory goes right, we used to be in the range of 67%-68%, and the conversion rate has fallen down. I'm sure you would have some parameters and measures. For my understanding, if you can help me, what are the top two, three things we are doing for improving the conversion rate?
I think we are very much comfortable with this conversion rate, as I have been speaking also earlier. I believe that at least two people come to buy something, and they do one invoice. In our V-Mart scenario, we've always seen that conversion rate being around or close to 60, hovering around 65%. Right now, especially from South India, the way we capture the footfall there and the way conversion is being noted, we are seeing around 50% conversion in South India. Which I feel is a genuine number, which I definitely feel is a genuine number. I think we are comfortable on the conversion rate side.
It is more about increasing the footfall that we are worried about, and we are trying to work only on that side to try and attract more customer in the store.
One follow-up which I was wanting to understand, Anand Agarwal did say that the margin what we have shown because of the Unlimited franchise and expansion may not remain. When I do my number quickly, we have consolidation of about 7-8 months for Unlimited, and then hopefully FY 2023 is going to be normal. What is the worry which Anand Agarwal would have a concern that why the margin should not improve for our overall company?
Shirish, I don't have a worry. I think that I will stand by what our common philosophy is that we are an honest price you know business, and we would want to give back to the customer to attract him with the best possible pricing and not really earn more for increasing our margins. We would want to remain in the 32%-33% gross margin range and you know the resultant EBITDA. If there is a pressure on expenses, we would want to compensate that by you know higher volumes or higher you know customers, but want to give back as much as possible to the customers so that we maintain or increase our rupee margin rather than percentage margin.
Unlimited margins, because of the higher cost base, we are constrained to have a higher margin structure, which we will also rationalize in the coming years as we start normalizing the operating costs, as we open more new stores there in the V-Mart, you know, the budget and operating structures.
Sure. Thank you, Anand. Thank you, Renuji. I have more questions I'll take offline. All the best to you.
Thank you very much. Ladies and gentlemen, we'll take that as the last question. I'll hand the conference over to the management for closing comments.
Thank you everyone. I know these are all testing times and the comparable numbers are very difficult to get reported, to change also. Forecasting is becoming very difficult. Algorithms are failing. There's no precedent of how what base should they take, what products will work well, how which products worked well in the last year versus now what is going to happen. There's a change in the customer behavior. There's a change in the customer preferences. There are a lot of assumptions. There are a lot of algorithmic shift which is happening. That is how we are also being very watchful, trying to do best from the side of inventory management, customer satisfaction, as well as our operational performance being getting better.
We are working on all those lines, doing a lot of experiments using technology to bring out results, looking at things from a zoomed out level, looking at things from a process-centric level, and bettering and then strengthening those, looking at our long range plan and then trying to also transform some of the areas so as to get higher benefits in the coming days. That's where we are. Thank you once again for being on the call. We'll keep reporting back to you. Thank you.
Thank you very much. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.