Ladies and gentlemen, good day, and welcome to the Q2, FY 2022 Earnings Conference Call of V-Mart Retail hosted by Edelweiss 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 then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nihal Mahesh Jham from Edelweiss Securities Limited. Thank you and over to you, sir.
Thank you, Rosa. On behalf of Edelweiss, I would like to welcome you all to the Q2, FY 2022 conference call of V-Mart Retail. From the management today we have Mr. Lalit Agarwal, Chairman and Managing Director, and Mr. Anand Agarwal, Chief Financial Officer. I would now like to hand over the call to Mr. Lalit Agarwal for his opening remarks. Over to you, sir.
Good morning, everyone. Wishing everyone a very happy Diwali and good festival days coming in. Wishing everyone on such a positive note where we have not seen too many or too much of hue and cry over the virus. It has been a very good festival time for everyone around India. Thank you for being on the call. Thank you, Nihal. I'm very happy to come on this call on a positive note that, yeah, things are looking better since market is bettering every day, every month, every week, and we are seeing a good response week on week improvement that we are able to see.
Especially in the last four or five weeks, we are able to see much more this pace continuing and also bettering every time. Overall I think consumption is coming up. Consumption has become better, especially in the fashion segment. It has really picked up very well. It was also on the backdrop of two lockdowns and two bad periods and where there was also a gap created for the consumers where their wardrobes were a little empty and they wanted to now come and buy products for themselves and come out and show off.
I think also because of the fact that the virus is not coming back and the confidence and the trust that the people have now over that, over the little bit of, you know, stability over this period, is also asking them to try consumption because people are now taking bets on, if there's a wedding at the house, they could invite 300 people, 400 people. If there's a vacation that they're planning, they could go out, they could meet people. There is a, you know, transportation are almost becoming everything is becoming normal. Schools have started opening. Still colleges have not opened to that degree.
These are very good signs which is leading into a better consumption opportunity requirement and also ultimately will lead into consumption. As you all know, this COVID has really changed the perception of people, the life of the people, the way people look at their own living, the way people want to live. They today definitely, in the past, what has happened is saving has increased, expenses are reduced. I think in the coming future the saving is going to be little more lesser and people will spend for themselves and spend for their life and spend for what they want to do. That's my basic understanding. That is what we are able to see.
Yes, the same there is a small difference right now in the smaller towns. We still don't see that kind of huge growth in consumption. We did not see that in Durga Puja period before September or around September. We are able to see that coming in the month of October and now and in November. Still, the amount of good growth or amount of the excitement that we are able to see in the bigger cities, may it be Varanasi, Lucknow, Allahabad and Patna, is not what we are able to see in smaller towns.
Yes, there is a small gap and I think there is a point also of, you know, how do consumers handle their pocket because they have they are getting beaten by the inflation terrain. They are they have not earned too much. They are actually the lower part of the income group, have actually lost some money in the pandemic piece which they have they are down with. They will have to make that up. There are still some opportunities. Some people have still not gone back to cities and their original place of work, that's also hitting into their pocket, their family income.
There are some of these reasons. There has been some expenses in terms of mobile phone or a laptop which is also incurred because of their children studying and all. Even that is, you know, getting a share of their wallet. Otherwise, I think industry is doing great. The apparel industry, the retailers are getting good report as far as you know the organized trade is concerned. We are seeing a huge growth also from the likes of the conglomerate or the likes of the whether it is Tata or whether it is Reliance or it is Walmart- owned online e-commerce or Amazon e-commerce.
There are people who are trying to pitch hard, pitch more into retail, absorb, acquire the market, get into the market little more faster. We are seeing a good share of, you know, retail also going to them. Still, there's a lot of cannibalization. There's a lot of density in the market now and the movement from unorganized to organized has also scaled up and that comes at a cost. People are moving more towards organized because organized now is widely available in almost all the big cities of India. That's where we are. Then for V-Mart, I think it has been a very good quarter.
A better quarter as you all know, still not comparable to the last year's or our pre-COVID levels. We were down. I think the consumption is moving up. We had a great time. What we understand here is, I know, for us, once again, having a very good inventory level, having a very good control over the product, having a very good understanding about the customer, the change in their customer behaviour because of COVID, the change in the pattern, the change in the consumption of particular product lines. What will work, what will not work, how much will that work, how much should we buy, what should we buy, has been really big challenging situation. There has been a lot of ups and downs.
There has been a lot of, you know, analytical, re-analytical, forecasting, heavy re-forecasting activities which have been happening around. Definitely that has given a very tough time and challenging time even to our leadership team who has come out very well. I would congratulate my real leadership team who has done an excellent job, you know, handling these ups and downs, handling these in such a nice way, so as we have not been pulled into very high inventory or even the margins are consistent. On the other side, the integration of the Southern business, which was acquired from Arvind Fashions business, has been very good.
I'm proud to say that, you know, our team did a great job in integrating the IT on the processes, on the people, on the team. Very well done integration is what I would call. Yeah, still we need to integrate ourselves with the customer understanding, consumer behaviour understanding, the differentiated customer of that particular brand, the differentiated customer in that particular geography. We will have to really launch the products and the strengths of V-Mart, which is yet to come. We have to integrate the brand image. We'll have to attract the youth, which is yet to happen.
Yeah, overall, we only operated one month in this particular quarter and we were satisfied with the overall response because otherwise, normally when you take over a business, your sales go down, process goes haywire, billing stops, customers are not being catered to, employees have restrictions. We didn't get any of those bad news, and we had very good. We didn't even lose a single hour of sale. That's the good news that I want to give you. Otherwise, we'll definitely take more questions in the call. I want everyone, every participant to rest assured because we already have given too many updates about the Unlimited business in the past two calls. We don't have too many things to share right now.
Yes, we will definitely want to clear up all your doubts and all your queries around this. Otherwise, I think once again, the organization is consistent. There is a very good news that we also have, you know, the splitting of my role. I'm actually becoming more focused. I have now taken up the seat of the Managing Director. I have relinquished the post of the Chairman, bringing a better corporate governance, bringing the top in line corporate governance processes, so that we have brought in our best independent director on the job, who could really do a better job than what I have done.
So we have made Mr. Aakash Moondhra as the chairman of the company who is an independent and non-executive director. That's a pride moment for us. That's definitely something that not too many promoters and not too many founders have done. It, but it didn't make me think multiple times. Ultimately, we need to reach those highest levels of corporate governance. That's our focus, and that's what we will want to do. We continue on our ESG drive. We are also looking at environmental sustainability very closely. Society and society development is also very close to us. We have been focusing on educating people, bringing capabilities, building capabilities. We've also opened up two skill development centers in the past, one in Northeast and one in Bengal.
We continue doing something which will also benefit our society, something which will also bring us a space to us in the hearts of the people where we actually earn. That's where we are. I would definitely want Anand to take you on the numbers side and the report side. Anand, hand over to you. Kindly go ahead and give the details about the performance of our business in the last quarter.
Thank you, Lalit, and good morning, everybody. Anand this side. It's been a good recovery this quarter and with South India operations just getting started, we look forward to a very exciting new phase of growth for V-Mart. First, let me take you through some of the key financial highlights from the quarter and then we can open the session for questions. Primarily the second quarter is a relatively small quarter with no major festivals or any major consumption drivers and is usually low on margins due to, you know, the typical end of season sale liquidation drives, et cetera. However, owing to the extended lockdowns in quarter one, the recovery in this quarter becomes important.
While the quarter saw 95% of operational days, but it was still impacted by limited working hours, you know, contracted footfalls, lack of customer trust, at least in the beginning part of the quarter and also, regulatory weekend closures in some states which impacted the overall throughput. Despite this, I am happy to share we were able to achieve a growth of 8% over pre-COVID levels on a consolidated basis for the quarter, which also included a 7% contribution mix from the newly acquired 74 South India stores. One percent growth on a standalone basis only for existing V-Mart stores, so which is a, you know, a 101% recovery over pre-COVID levels which is FY 2020.
The increase in ABS or average billing size was 18% versus last year, which also denotes a healthy trend of, you know, consumer buying apparel, you know, which is getting normalized versus last year where more of comfort wear and, you know, homeware clothes were in demand. Whereas this year we are seeing more festive and occasion wear being sold which signifies a deep-rooted recovery in the consumer mindset. The customer traction also has been steadily building up and the footfalls are now trending close to 80%+ levels as compared to 2019. On the margin side, while there has been an immense pressure on product sourcing costs due to at least 20% to 30% flare-up in yarn prices, but we have been able to pass on the price increase completely back to the customer.
The change in product mix and lower discounting has also led to a marginal expansion in gross margin or product margins versus last year, while they remain almost in sync with what we, you know, used to see at pre-COVID levels. On the expense side, keeping in mind almost full level of operational days, there were no major cost savings apart from, you know, a one-time INR 8 crore rental concession that we received this year on account of COVID, as against a INR 16 crore concession that we received last year in the same quarter. Other than that, almost all other expenses remained at normal pre-COVID levels. There are no other major rent reductions anticipated in the next quarter as all operations are back to normal operating levels.
There is a one-time, no, not a one-time but addition in expenses also due to the operating expenditure of the 74 South India stores which remain as per plan. In fact, we look forward to, you know, rationalizing this and making it more efficient as we move along. Thereby to sum it up in terms of EBITDA, the quarter ended with 6.1% EBITDA at INR 21 crore as compared to an EBITDA loss of INR 4 crore last year and INR 11 crore EBITDA positive last to last year in quarter two FY 2020, which is pre-COVID levels. On the cash flows, we remain quite comfortable with the overall cash position. Major deployment of cash has been in the acquisition of the 74 stores in South India.
CapEx for newly opened 14 new stores and some amount of CapEx towards setting up of a new warehouse which we've already discussed in the past, the first phase of which should be ready by next financial year. Inventory at INR 560 crore remained in line with the build-up for the upcoming festive requirements and included approximately INR 110 crore of stocks pertaining to the South India stores which have recently been taken over. The South India store stocks include inventory which is only less than one year old which has been taken over, as all the old stocks remain outside the purview of the acquisition transaction. We've also started using part of these, you know, South India stocks in some of our North India operations with very encouraging response.
Conversely, we are also seeding some of the sharper price stocks from the V-Mart traditional inventory into the UL stores, the Unlimited stores to position the sharper price points that V-Mart is known for. As far as the online business is concerned, the online business continues to grow strongly, albeit on a relatively small base, but we remain very committed and very focused on building this to a large level. With availability on vmartretail.com, apps on iOS as well as Android, and also with a very limited assortment present on marketplaces as of now. As of now, the contribution mix from online is around 1%, but we continue to build this business towards a 5% revenue mix in the next two to three years which should be aided by hyperlocal delivery and lower cost to service nearby customers.
Digital transformation remains a key focus area for the company and we have set up a special new team to focus and leverage on technology-led initiatives to improve efficiency in all parts of the business. Coming on to the store expansion. On the new store expansion plans, we remain fairly committed to keep expanding not only in the online space but also maintain the rate of growth of 20% to 25% on physical store additions. So far this year, we have opened 24 new stores, and in addition, we've also acquired 74 stores in South India, and thereby the tally for, as on date stands at 376 stores for the company. There are plans to open a total of 40+ stores in this financial year out of which 24 have already been opened.
Some of these new openings might now also start happening in South India. On the Unlimited piece, the business is showing definitely good early promises of a stable and profit accretive base in South India in the quarters to come at a zone level and without any significant overhang of corporate overheads. In the last two months of operations and without any significant changes made in the cost structures or any you know big-ticket systems or you know merchandise inventory planning, et cetera, the operations have remained quite satisfactory, although it still remains very early to make a judgment on how soon can we start looking at a very in line with V-Mart kind of you know profitability and growth.
There's a strong team that we have inherited in the, you know, in the South, and there are a lot of initiatives planned for South India, including opening up of new stores right from this financial year itself. There is also a lot of synergy being leveraged in terms of product, visual merchandising and also operational excellence, which is being cross-pollinated from south to north and vice versa to benefit the entire organization. We remain committed to make the combined operations in sync on providing better fashion and value to the customer. On the outlook, I think there are two challenges that remain open while we remain extremely bullish and optimistic on the overall retail and business scenario. I think the two challenges, one is on the continued cost pressures in terms of the cotton price increases.
Second is on the anticipated GST rate increase which the government has announced to be effective from January this year. While we have made contingency plans and mitigating plans for both of these as far as the cotton prices are concerned, we have already passed on the full impact of the price increase in terms of higher prices. If things remain in the upward trajectory, we will be continuing to increase the pricing going forward as well. As far as the GST rate increase is concerned while the government had announced that this might be effective from 1st of January, we're still to hear on how the migration process, et cetera, will actually pan out.
There may be, you know, short-term challenges in terms of how to mitigate the loss on the existing inventory but we remain optimistic and will remain in dialogue with the Finance Ministry through associations and communications to ensure that this transition is also managed and mitigated to a large extent. That's all from my side, and I now request the moderator to open the house for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. I request the participants to please limit their questions to two per participant. If you have a follow-up question, you may rejoin the queue. The first question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Happy Diwali to you and the team. It's really heartening the strong recovery which you have reported. I have a few questions. The first question, there is an incremental dichotomy out there in the market that whether this physical retail will win back the customer. We recently saw, in the morning that even Nykaa IPO was having a super bumper listing, and they're also entering into the online retailing. In your sense, how does this physical retail piece will shape up for V-Mart o r is that incrementally the customer will drive down to the other channels of connect?
Hey, Shirish. Good morning. Very well, very good opening question. This is definitely one discussion which is occupying almost 50% of our board's time and board meeting time and the strategic discussions which comes in and which is always discussed at our top leadership team. What comes out is, you know, it's going to be purely multi or omni-channel. It is neither this or the other. It has to be multi for everyone, omni for everyone. Whether online key players want to build their business, want to establish their brand, want to have a grip over the customers' consumption, they will have to be available in both the channel eve n for V-Mart it'll be very important.
Yes, physical experience, more and more digital will definitely drive people for those physical experiences because they definitely once they're locked in a room or tired in a room and tired with a screen, so they want to come out and also experience that physicality and that physical experience. I think it will be genuinely a large piece over the digital channel which is going to be both omni as well as I would call, customers want it to be available in both the platform, not in the real sense omni because people have a lot of time in India and they still don't want to save time to do digital. They really want...
Right now it's more a grab-oriented deal, a price-oriented deal which people have [log] on to. Yes, we have started realizing from this quarter, the last quarter, that people are now also looking at, we are also getting a very good traction on the kind of honest price, you know, approach that we have taken up in the online channel. I think that is also going to play its own role and we will have a very good win over that digital customer in there.
Lalit, I completely agree with your view but just one follow-up. You always have been vocal about premium fashion. I think what I'm trying to hint at is that the customers which we serve in Tier-II , Tier-III are the value-conscious customers. Do you really think it will be becoming a threat to us or you think it is an opportunity?
It's definitely an opportunity, Shirish. I can tell you, I also told us before. There's a lot of new areas and a lot of new cities and lot of new data that we're receiving. The top 1,000 cities where we're getting footfall from, and the 1,000 cities where we're getting, you know, business from. We are tracking them. We understand. We have got some lot of revelations on that. There are a lot of towns which got discovered. I think those fundamental things are also very important. We will definitely take and make this as an opportunity. That's what the approach of V-Mart is all about.
Anyway, I have a longer discussion. I'll take it offline. My second question is on the winter portfolio. We have a very strong winter portfolio which also drives our top line, heavy top line, and it impacts the profitability for the company. In the early stage, I mean, around festive season, how this traction is happening, and if you could spend a minute or two, how the inventory is stacking up, how the initial response in the markets which is just getting opened up, especially our Hindi belt, which is very our two strong markets like UP, Bihar, Jharkhand.
Yeah. I think winter and pre-winter or even the northern retail business, Northern India retail business, has been really understood by V-Mart and the team of V-Mart very well. The processes that we have to plan, choose or to create and also supply and handle the supply chain is really very strong. We believe there has been a great launch of our pre-winter and winter collection. We have really picked up and then the acceleration in the sales from those categories have been very good, especially in this year. We have seen a very good demand coming in. We have seen a very good response from the consumer. The feedback is awesome on our pre-winter collection.
I want to congratulate on this moment even to our and appreciate my entire merchandising team, who have done a great job in bringing a very differentiated as well as a unique product in the market which is bringing in a lot of differentiation in the V-Mart brand as together. We are really booming on those sides. We have definitely taken up some price rise also on those product lines but we are seeing customer paying them. What we have done is we have worked a little more hard on the product designing, little more hard on the product manufacturing, so that we are able to compensate some of those price rise through the manufacturing cost reductions.
Otherwise, we have worked with the team to create a very good product which is perceived as much more better and much more, a little more lesser priced product would be seen as a much more better product in terms of the look and feel of the product. That's what we are focusing on, and that's giving us good result. We believe this is a clear differentiation with any kind of retailer whether they are the topmost of Indian national retailers or even they are local retailers. We have a very clear edge in this particular collection. Thank you, Shirish, for bringing this up.
Sorry to interrupt. May I request Mr. Pardeshi to please rejoin the queue? We have participants waiting for the turn.
Sure, sure.
Thank you. We'll move to the next question, which is from the line of Percy Panthaki from IIFL. Please go ahead.
Hi, sir. First question on the South India foray. You said that some of the new stores you will be opening up now in South India also. Firstly, when you do that, will they be branded V-Mart or will they be branded Unlimited for now? And secondly, if you are branding them V-Mart, will you open those new stores even before the rebranding of the Unlimited stores to V-Mart takes place? Yeah, just the first question on that. Related to that, how long do you think before the Unlimited business turns OCF positive?
Percy , you have long list of questions, and you have to be a little patient to get the answers for all those questions, but I'll answer questions. We still are on the research mode. We still are on the finding mode at how well is the Unlimited brand established in the market. We want to first understand that, the brand perception, the brand understanding of the consumer, the brand strength in the market. We are doing all those kind of formal process involving them in the process.
Yes, we will continue opening and whenever we put it out, the strategy on that day is going to be because we ultimately want to change the look and feel of the store and the brand ultimately. It will happen.
Sure. Understood. Secondly, just wanted to understand in terms of the normal store opening, not the South India but in your existing markets, what strategy are you adopting there? Are you sort of trying to saturate the three or four core states that you are in o r are you planning to open a higher number of stores in the states where you have only a minimal presence?
Anand can answer this question?
Yeah.
Yeah. Anand, please go ahead.
Percy , it's not you know an identified goal as to that we only want to saturate, let's say UP or Bihar. I think it's a very distributed strategy. We are definitely using the cluster-based model that we have evolved over the years and drive it to perfection. Which will mean that we will also you know open more number of stores in the core markets while inching outwards and spreading ourselves to newer areas and newer geographies like we have been doing in the last many years. Just as an example, we've opened more stores in UP this year and we've also opened stores in Northeast. We've also you know opened stores in, let's say West Bengal, et cetera, and Rajasthan. It's a distributed approach.
Right. Lastly, on e-commerce strategy, the price points that you are putting in e-commerce, are they similar to the price points you have in your store or are they slightly higher price points?
They are exactly the same. In fact, the same merchandise is getting populated on the online channel. When you visit vmartretail.com, you will find exactly the same merchandise. There is also a little bit more new experiment that we have started doing which is in terms of putting in some exclusive merchandise which is available only online and not in the stores, which might be at a slightly differentiated price point or in form of, you know, packs of two or packs of three which is something very prevalent and popular on the online channels.
Okay, sir. That's all from me. Thanks, and all the best.
Thank you. The next question is from the line of Harsh from Motilal Oswal. Please go ahead.
Hi. This is Ali from Motilal. I have a couple of questions. First is on your store addition. Anand, you mentioned you were looking to add 20%/25%, you know, new stores. Even if I take the current number, it works out somewhere about 90/100 stores. In the past, you know, if we see 2019, 2020, on average done about close to 40/50 stores. If we are looking to add at that accelerated pace, can you just share some insight in terms of what capabilities you may have built internally in terms of the pipeline of properties? You know, how we plan to basically execute that kind of a pace of store addition.
I understand obviously that, you know, this pace is going to continue. You know, if you can also share some color in terms of the opportunity in the market to add maybe 100-odd stores consistently for the next maybe three to five years.
Yeah, Ali. That's a very good question. As we understand and as we have seen in the last many years, the 20% to 25% retail area addition pace is based on the fact that we have the management bandwidth and the operational bandwidth to manage that number of new openings. Accordingly, we keep on adding and improving the capabilities and the width of the teams not only in the core head office, but also in the distributed geographies where we operate. We divided or sort of, you know, branched out the operations into a zonal structure three years back. Thereby we have now regional teams which are taking care of the business development function, identification of new sites function independently.
This capability also now exists in the South India region while it already was there in the North, East and West regions, which we had earlier used to operate. Thereby we are quite conscious and confident that we should be able to maintain this rate of growth.
Okay. Also can you share some, you know, color in terms of the pipeline of properties you may have built?
There is no number, Ali, that I can share, but definitely there is always 50 to 60 properties which are under consideration and in various stages of vetting, maybe just at the proposal stage or at a site visit stage or many different stages that we do as a techno-commercial process. Suffice to say, there is a healthy pipeline and we do keep building on the pipeline consistently.
Got it. Second question is on Unlimited. Correct me if I understood rightly, you mentioned that, if I exclude the Unlimited business then standalone V-Mart has grown 1%. That implies basically that, you know, rest of about INR 20 crore-INR 21 crores in this quarter has come from Unlimited. Unlimited started, I think, from first of September, so, you know, if you could just share some more color in terms of, why such a small number? I mean, what could be the steady-state number of Unlimited? I mean, if I just assume all the stores are opened and fully up and running.
A related question over there is, you know, I mean, I understand that you will have a detailed strategy, you know, conversation on Unlimited separately but just if you could share, you know, what are the avenues that Unlimited has to improve the margin? So I understand rental obviously will maybe be a little sticky, you know. So there, would you have optimization of cost as one of your key strategy or, you know, you think throughput can significantly improve? I mean, I'm just trying to get some insight in terms of how you would be, you know, look to improve margin profile and profitability in Unlimited. Thank you.
Ali, while it is very early days for me to comment and really pass a judgment on how the sales trajectory, et cetera, will go on, but I can just add to what I already said. See, September, first of all, is a small month and it is also the first month of the transition which happened. We had anticipated the kind of number that had come in and we are quite happy with the number that came in. It is in line, in sync with what those stores had achieved in the past. There were no surprises, negative or significantly positive. We are happy with what we got in September.
So far also in the month of October and so far what we have seen in November, I think, the progress is happening as we had anticipated and as we planned. As far as the profitability and the cost structure goes, there are no big changes that we have made in the cost structures. There is only one change which has happened organically which is the removal of, let's say, the corporate cost structures of the erstwhile management team of the Unlimited team that was managing that business.
Otherwise, on a store level, on a operational level, there are no major changes that we have made or we are planning to make. I think our combined focus of the entire team is to bring sales productivity higher, and that should compensate, you know, in terms of higher profitability and bringing it at par in the long term to the near about range at which V-Mart traditionally operates.
Okay, got it. Just for , you know, I mean, modelling or maybe understanding point of view, what would be the stable state of revenue potential of, you know, Arvind, sorry, Unlimited?
I think stable state we should aspire and we are planning and targeting to take it to near about levels of what a normal new store of V-Mart would operate at.
Somewhere about INR 19 crore monthly, quarterly, yearly run rate?.
I don't want to put any numbers but definitely, we would want to have a very harmonious and a stable structure across.
Okay. That should take about a year, or it could be sooner?
It should be at least one year or more.
Ali, [Non-English content] come on, give us some breathing space. Please don't expect any number from us.
Absolutely, sir. Thank you so much for providing all the details.
Thank you. A reminder to the participants, if anyone wishes to ask a question, may press star and one. The next question is from the line of Madan Gopal Ram from Sundaram Alternates. Please go ahead.
Good morning, sir. Able to hear me?
Yeah, please go ahead.
Yeah. Congrats on good performance in a difficult quarter. If I look at from pre-COVID level, like Q2, FY 2020, the footfall is still low. Obviously, there has been some disruption in the operations, as you highlighted in the initial commentary. As we move into the festive season, how was the footfall compared to, say, pre-COVID festive season? What was the experience?
Madan, footfalls have now been growing up. I must also add, you know, that footfalls are not really the same. One should not look at footfalls in the same breath as we used to, let's say, look at them two years back because there is also a slight shift in the way consumers come for shopping. Earlier, people used to come for shopping in groups, in larger groups of friends and families, you know, families of three or four. Today, there is a slightly more focused approach where people want to come only to shop particular things that they want to buy. Only in festival times or very, you know, special times that they would come in, let's say groups of two or three.
Having said that, I think an 80% recovery on footfalls and a slightly higher recovery in terms of the number of bills cut is definitely giving us confidence that you know, the customer trust is now back in full force.
Are you saying the festive season in terms of SSG flat compared to pre-COVID o r are you seeing some growth also?
No, there is I would say it is still not flat but definitely during the festive it has been flat. At least for the quarter it was definitely not flat. It was at around 85% of recovery on the SSG or like-for-like. During festive we are seeing, you know, more close to flat or growth also in a lot of areas.
Okay, great to hear that. Thanks. That was my question. All other questions have been answered. Thank you so much.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Yeah, yeah. Hi, Anand. Thanks for the opportunity. Just two questions from my side. One is that on Unlimited, you mentioned that the recovery or the one-month period what you have seen heartening. When I look back, before acquisition, they did somewhere around INR 320 crore and the run rate was about INR 86 crore. Remember what you said about four, five, 4.5% contribution. Is it safe to assume that the understanding, whatever you have got and the parameters on which you have evaluated that has surpassed in the one-month of operation?
Shirish, as Lalit also said, I think one month is too short a time to pass any judgment. Let's just be a little bit more patient because if we say anything right now or if we, you know, decide something right now, that one month is the barometer or the, you know, the benchmark, I think it may just lead us to some wrong conclusions. Let's just wait for a little while before we can start giving out good commentary on the Unlimited piece.
Okay. All right. I take it with that. On the second part, you mentioned that you have taken about 8% odd price increase because of cotton yarn inflation. Is there any further price increase in the quarter two you have passed on or it's that, whatever you have taken in quarter one?
So far what we have taken is somewhere around 8%, but further price increase is not ruled out because the cotton yarn prices are not showing signs of any abatement. As a consequence, therefore, also in our next year planning, there might also be a quantity de-growth, in terms of, you know, the number of pieces that we are able to sell because of the higher price increase that may eventually be required to happen.
Okay. All right. That's it from me. Thank you and have a good day.
The next question is from the line of Jaspreet Singh from Equirus PMS. Please go ahead.
Yeah. Hi. Good morning, team, and congrats on the various initiatives, including that what the Mr. Lalit mentioned. My first question was around this recovery, Anand, which you mentioned 85%. What I'm trying to understand is, compared to two years back same quarter for a matured store for V-Mart, would the recovery be back in terms of, let's say, the revenue per day or revenue per month as we speak or maybe the month of September?
I just explained that, Jaspreet. In the September month or September quarter, the recovery for a like-for-like store was somewhere around 85%, and that's also amplified in the, you know, the data that we had published in the investor presentation deck. As I speak, in the festive period in the last three weeks, we have seen close to 100% recovery on the same store basis for the mature stores or all the stores.
For the quarter it was close to 85%, and now in the subsequent month, it's reaching 100% for a matured store?
Yeah. Yeah.
Okay. That clarifies. Second is in terms of margin. You know, the December quarter typically is the one where we you know get the best margins, you know, between 20%-22% or, you know, ballpark, whatever be that number. Given you've highlighted the headwind of cotton prices but at the same time, you know, I'm talking about only V-Mart ex Unlimited. Do you think there is a case where this could be up going forward, given that we would also have seen some kind of cost rationalization on the overheads which might sustain for a long period of time?
Jaspreet, there are no cost rationalizations for a long-term period. We have you know aptly stated that in our previous last many calls. Retail is largely a fixed cost business. Otherwise also the inflationary pressures are not only on the cotton side, there are inflationary pressures all around.
Okay.
You look at the commodity cycles, rate cycles, everything is going up. This has been the year of inflation, so I do not see any margin expansion happening because of cost saving. Otherwise also, as a philosophy, V-Mart firmly believes in, you know, operating on an honest pricing model. We will pass on. If there are any, you know, more margins that we can accrue, we will pass them back to the consumer in terms of sharper pricing.
Okay, fine. Just a quick last one. Again, you may have touched upon the previous calls but just trying to understand. Is there room for, maybe not immediately, because you would need a couple of quarters to absorb, integrate and, et cetera, for Unlimited. Maybe next calendar year, latter part, would there room for another round of acquisition, for which you might start working the, you know, subsequent quarters?
I can't say anything with, you know, certainty. These are things which happen because of, you know, more special reasons. Nothing on the radar. We're not looking or working at anything. We will keep exploring, and we will keep looking at things. If there is something, we'll definitely let you know.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global Financial Services. Please go ahead.
Yes. Hi, thanks for the opportunity and greetings to the management team. My question is on the expected change in GST rates. Just wanted to check, is there any mismatch currently between the input tax credits and the output GST in the current regime?
While not directly as far as we are concerned on the product side but definitely there is a mismatch in terms of the CapEx or GST on the CapEx that we do versus the output tax that we pay on the goods that we sell. Output tax on the goods that we sell is almost on 85% of the goods it is at 5%, while for around 10%-15% of the goods it would be 12% or 18%, because there is some portion of FMCG also that we sell b ut if I look at the input tax credit, let's say on the services or on the CapEx that we do on the new stores, the average GST rate works out to around 18%.
Any blended level that you can indicate? I just wanted to understand, as in when GST increases to 12%, will we be able to offset a higher amount of ITC? Because currently we may be able to offset only the 5%.
No, definitely. From that perspective, it is a positive. There is no doubt on that. It will definitely lead to better absorption and lesser accumulation of ITC. I think the worry is not from that side. The worry is more from, you know, getting the consumers to pay more for the same goods. And also, you know, there is a large amount of inventory that we hold on which we had paid only, you know, or we had received an input of only 5%. If things go as per what the government is supposing, we will need to end up, you know, paying or depositing a 12% GST on that inventory as well in terms of the output tax as and when it gets sold.
Sure. Secondly, just wanted to check on the price hike that you have taken. You have indicated 8% so far. How is the, What is the extent of price hikes taken by the competition? Any idea on that?
Our sense is that almost everybody has taken a very similar kind of price hike. It may not be very clearly visible but our studies and our understanding shows that it is very similar. Maybe, Lalit, you want to add something here?
Yeah. See, this is definitely something which has shaken up the industry and there's a lot of interactions and a lot of debates which is happening. Both the price rise because of the fiber, the yarn price is going up, which is definitely shaking up everyone. Nothing is in control. Everyone is on their toes to understand what kind of prices, what kind of product, what kind of, you know, MRP should be charged up? Then there is an increase that everyone has taken up. No one is able to resist it. People are also accounting for a still additional price rise.
People are, you know, the entire industry is doing that whether it is an unorganized trade or organized trade. Everyone will have to buy at a very high price and then sell at a higher price. Other than that, the issues on the GST front, the whole industry is focusing on this. We are actually, I'm working. Let me inform you that I'm also working with the entire industry group to try and talk to the government and understand, build those methodologies and understanding that why it will be difficult for the consumers to pay these kind of prices and these kind of taxes. Still, I don't see a lot of response from the government. I think it may get.
There are certain 80% chances that it may get implemented.
Sure. Thank you, sir. That's it from my end.
Thank you. The next question is from the line of Vinod Malviya from Union Mutual Fund. Please go ahead.
Yeah. Thank you for taking my question. My question was regarding the organic growth. Now, before this Unlimited store acquisition, you had given a broad guidance of reaching some 600-odd stores over the next four to five years, and that was largely on the, if I remember correctly, it was on the organic side. Now, you've added 74 stores of Unlimited. So, should we like assume that close to 670-700 stores would be added over the next four to five years, including the Unlimited stores o r the store will basically be the guidance you said earlier, which included both organic and inorganic growth?
Vinod, I think our projections will remain intact, our aspirations also remain intact, and we remain very optimistic on the overall, you know, opportunity that the market offers. We are not chasing any large numbers. We are not aspirationally growing in terms of that we have to open 600 stores or we have to open 100 stores. I think we are firmly guided by the profitability principles. We are firmly guided by what the consumer expects of us and thereby that number will totally depend on what is the right location and what are the right opportunities that we are able to see and therefore leverage. There is no, you know, number that we are chasing that we have definitely to reach this number at any cost.
I think, what we are definitely chasing is a profitable and a efficiency-led growth.
Something which was done in the past, we will not leverage the balance sheet for the sake of getting growth. That trend will continue even going forward?
Yeah.
Whatever growth comes, that has to come from with the support of the balance sheet other than just leveraging?
Yeah, absolutely. Absolutely.
Okay. That's all from me. Thank you.
Thank you. The next question is from the line of Vikas from Equitas. Please go ahead.
Thank you so much for the opportunity. My first question relates to Unlimited. If you could just give us like a broad sense of whatever September month revenue that you have recorded. Was it like how much recovery that you had versus pre-COVID levels for that month specific? Second question would be if you could just reiterate what you just said to an earlier participant's question regarding what levers do we have with respect to bringing Unlimited's profitability nearer to our V-Mart margin levels? Thanks.
Actually, your voice was not very clear. From what I understood, you asked two questions. One was around the recovery percentage that we spoke about in the first question, and second was on the profitability projections or for the South India stores. Is that correct?
First question was regarding the like-for-like performance of Unlimited for the September month that we recorded this time and how was that with respect to probably pre-COVID levels, say, in this last year? Another one was, correct, as you said, the lever that we have for bringing Unlimited profitability to our V-Mart store levels.
For the Unlimited, you know, the stores, the like-for-like comparison was not really relevant because there were significant amount of changes which happened during the pre-COVID times versus what happened in this year. As I said earlier, we would not really want to comment too much on the performance in the first month itself. It is too short a period. I think we should just be a little bit more patient in terms of, we are also being very patient in terms of understanding the right trends so that we can take the right actions.
Now, as far as the profitability is concerned, we remain firmly focused as a company always on making any part of the business operation profitable. We are very hopeful and very optimistic that we should be able to repeat and replicate the same kind of model or structure in this newly acquired set of stores. It might take a little bit of time. We have already given ourselves and planned for one to two years of a runway, wherein we would want to reach a similar kind of levels, and we will, you know, continue to monitor the situation and keep coming back to the, you know, the larger Ambit group as and when we have something major to report.
Thank you. The next question is from the line of Ankit Kedia from PhillipCapital. Please go ahead.
My first question is regarding the CapEx. Can you highlight the CapEx which we have done outside the acquisition for the first half and for the remaining half? What is the target of CapEx?
First half, apart from you know the acquisition of these 74 stores, the other CapEx largely has been on you know the new store additions. Also purchase of land, which we already reported in quarter one call, for building up a new warehouse on which work is shortly about to begin. For the remaining part of the year, again, there are going to be two parts. One is around the new store additions. Roughly around 15/20 stores should get added in the second half. There would be some amount, roughly around INR 20 crore-INR 25 crore of CapEx that should get spent on the building for the new warehouse.
The major part of the warehouse CapEx will come next year and not this year?
Yeah. Correct. Correct.
Some second question is regarding the gross margins. You know, currently the ASP and the gross margins of Unlimited are slightly on the higher side. Initially last call you had alluded that, you know, from the next season, you know, we will pretty much migrate to the same cost structure of V-Mart at the Unlimited stores level as well. You know, should the gross margins actually correct going forward, you know, at the company level, given that at least next six months of gross margins would be slightly higher?
Ankit, we are evaluating and what we believe the customers there are able to pay a high or are able to attract or we are able to attract customers to pay a little higher prices on the similar product. Then definitely there are some of the good things which have been happening. There's a margin structure that Unlimited is following, but our focus will be largely to bring up the thought process on the customer's mind that we are actually delivering them at a better value, a better product. While creating the product, there may be a dent on the gross margin from the earlier times, but we still would have a higher gross margin. Two, because one, we will be largely a fashion store.
Two, it'll be a you know single season geography wherein we may not have to discount too much for the season sale and end of season sale. There are not too many winters and summers which are there in the northern part of India. We will have a lesser discount margin which will go out. Also third, I think it is also because that we don't have any other business of Kirana and which are lower margin businesses, so we also gain some margin from those lines. I think overall, the gross margin on those lines of those side of the business and those portions of those geography will be much higher. Definitely we are bringing in efficiency in our operation.
All those practices that we have been building up in V-Mart will, when these efficiencies are implemented at the Unlimited level, we will definitely see a better outcome at a lower cost. That's the approach that we will take. I would want everyone to rest on this piece for a little while, and we will definitely keep giving you additional information in the coming time.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you everyone bu t definitely, these are testing times. These are the lot of iterations, lot of algorithmic calculations are going on that how do we handle inflation, how will customer handle inflation, how will customer take up inflation, what will be the strategy adopted by different brands and different industries. It is definitely eating away a lot of the mind share and the discussions, the board meetings' share in each of the boardrooms. These are definitely big questions to get answered in the consumption industry, consumer industry. All the consumer industry must have got that impact. I think, once again, this shall also pass away is what I want to think of it.
Customers are definitely going to earn, or whenever there's inflation, we say economy runs well, economy runs better. It's a higher GDP or per capita income for individual customer. That's how we take this as a very good growth opportunity. We anticipate a very good growth phenomenon coming in the next two years for the entire India. Thank you. Thank you so much for being there patiently. We will definitely report back in the next quarter. See you.
Thank you. On behalf of Edelweiss Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.