Ladies and gentlemen, good day, and welcome to V-Mart Retail Ltd Q3 FY 2025 earnings conference call hosted by IIFL Capital Services Ltd. 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 the star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Gupta from IIFL Capital Services Ltd. Thank you, and over to you.
Hi, good morning everyone and welcome everyone to V-Mart's conference call. Without taking more time, let me hand it over to the senior management for their initial comments and we can take Q&A after that. Over to you, sir.
Good morning. Thank you, Sameer. Thank you for hosting us. Thank you once again to every participant who is there in the call. The run continues, w e definitely see a little betterment in the market. The festival has been quite good. I would not say it has been very good because the way we expected it didn't perform as good as that in the last few days of the festival. But yes, post the festival, things were very good.
We saw overall demand spurt because of the marriage seasons as well as the winter sale which got generated. Winter definitely got a little delayed in the month of November and then it was weak in the month of December. December was very good in terms of winter period.
Yeah, the overall sentiment in terms of the semi-urban, rural population, the overall sentiment in terms of the lower strata consumer segmentation that we saw in the industry, in the market, at the last stores has been quite promising, has been good. We do, I mean, the commentary that I'm saying is not resonating with some of the other brands and some of the other companies that we have been speaking with and we have been knowing that. So, but y eah, we are definitely seeing some betterment here.
It could be also an outcome of what we are seeing which is an outcome of also maybe unorganized share reducing a little more, organized moving into more of organized share, and that is helping a lot of value retailers and especially value retailers who are quite nearer to the consumer demand, nearer to the consumer taste, nearer to what the consumer wants in that particular market, and is able to provide the real value, real quality products.
So I think most of the industry players in value retail are getting good responses and that is heartening to know and that definitely also is telling us that, you know, there is definitely a lot of shift which is happening from unorganized to organized and it is becoming good news.
It is becoming good news for the overall industry. Everyone is getting the benefit, so I think the performance during festivals has been good. The performance during winter period has been good in the last quarter. Definitely some spending concerns were there from the government side, some real liquidity concerns were there at the consumption end, which we realized, but still I see there are change of hands which has happened because the consumers who were consuming earlier has now shifted a little bit.
Youth somewhere we have seen that youth have got a little more liberty, little more empowerment, little more ability to spend in the market, and we also acted in that spirit in the last year itself and which has given us some benefit. So we have suddenly watched ourselves as well.
The youth share of our business has literally gone up because our that share used to be somewhere around 22% that we have now has gone up to 27%. We are focused towards the Gen Z population and Gen Z population itself becoming larger and then becoming much more empowered is giving us those kind of betterment. I think this particular spree that we have taken up or this particular strategy that we have taken up to attract that particular kind of audience and be relevant to that particular audience with all those initiatives is definitely the right move that we feel and will continue doing that as well.
We feel that, you know, definitely all these focus towards the lower income or the middle income group segment which is especially more in urban cities which is by the government by even reducing the taxation and raising the limit. All of those, all of this should definitely further help us to sustain that and maybe grow that. I think largely the fabric prices, the material prices have been almost constant.
There has been some movement in the material prices, in cotton prices, in nylon prices, but I don't think. I don't see a lot of risk because the government's focus is also very largely on the textile sector. The government is ensuring that, you know, the cotton prices don't go up and there's enough production in the cotton prices.
So all of those moved by the government also towards the textile industry is definitely something which will add more resources which will add more benefits in the overall manufacturing side. But yes, definitely it will also bring in a lot of innovation because whatever PLI schemes that is being given in the textile sector is also bringing in a lot of innovation in India, a lot of new development of fabrics, a lot of new development of those kind of product lines is getting developed.
And then also, another good news that we're seeing is, you know, a lot of factories are getting set up, even in apparel sector, even in garments. So I think some of these pieces, we are very conscious of all of these pieces w e are regularly participating in industry meetings and industry areas.
So we do get updated on all of these areas. We try to motivate vendors to try and grow into those levels, get onto those segments. A lot of states are offering a lot of incentives and betterment benefits in terms of apparel manufacturing units, giving them labor subsidy, giving them capital subsidy s o all of those definitely is a better area so that organized production, large-scale productions can happen in India.
Large-scale production will definitely help retailers like us who are growing and who are definitely wanting to have better supply chain, better mind-to-market speed, better fashion designing, better quality s o and definitely reducing the prices, which is the important part.
So all of those things is definitely making the whole value retail segment, value apparel fashion retail segment a little more stronger, and that can give a little more pressure to the brands, to the ones who are selling it at a higher price, or are targeting the higher middle segment of the consumer. So there are some constraints I have been seeing and that continues even in this quarter. So, but yeah, largely for us, we have been focusing and we have been really strengthening our quality piece. We have strengthened our design piece.
We have worked a lot on our store experiences in terms of ambiance, in terms of the, the look and feel, in terms of the visual merchandising, in terms of the product displays, in terms of the cleanliness of the store, clutterless, reducing the clutter levels in the store, trying to work on the density of, of inventory at the store level. So some of these pieces are also giving us some, some benefits. We are definitely focusing a lot on sourcing, focusing a lot on reducing the prices, focusing on keeping the prices sharper, aligned.
We definitely haven't reduced our margin yet. That also we may, we may experiment a few of the items a few of the products where we would want to generate a little more higher volume and try to, try to see what is the market possibility demand, which can, which can get accrued.
Some of these things have happened. We are definitely working a lot on the futuristic need in terms of the technology, in terms of the integration of technology, because there are various processes which needs to get automated, which needs to get a little more sharper, which needs to get scaled up a nd there we were using some of those technology pieces.
We are talking to a lot of technology companies to integrate further processes as well a nd enhancing our digital experience even in the at the store level in terms of those, you know, lost sales or in terms of endless aisle and our one-click proposition through LimeRoad is really working very well. We've seen a lot of app downloads at our stores.
We've seen almost more than 3 million app downloads happening to our stores. You know, so some of these pieces are for the futuristic understanding, futuristic need, and then some of these pieces are now coming into good thought processes and we also have focused very highly on getting our inventory levels at the base or reduce our inventory levels, base of inventory going down, better freshness of the inventory at the store level. How do we increase our freshness? How do we really better on the new designs and new philosophy of product lines which is required by the consumer? So some of these things have helped us and then we will continue doing that.
Manpower cost has been a little bit of challenge because manpower minimum wages have grown in certain markets, grown by a very high degree. So that also, initially it could look like a bigger, better, or higher cost to the organization. But later on, we believe that all of these minimum wages will also bring up the GDP of that particular state, t he per capita income will go up. The consumption further will come up and that will further offset all of these costs.
So definitely yes, states like Odisha saw almost 29% minimum wages hike l ike Jharkhand saw a 22% minimum wages hike. So some of these states which went for election in the last two years, in the last year, have seen a great good growth in the minimum wages hike.
So that is increasing a little bit of putting a little bit of pressure on the labor bill on the manpower bill. Even the high huge competition which is splitting up, everyone wants to open up more stores. A lot of money has been raised in the market through private equity and IPOs. Some of these pieces definitely brings more dynamism in the market. There's more number of stores getting opened e veryone wants to target a higher growth s o I think some of those pieces also is trying to, you know, there's higher competition among employees s o that is also something that we are watching and we do know, but there could be some pressure.
But yes, we are trying to nullify all of these pressures to bringing automation, bringing digitalization, and trying to provide similar or better solutions in those similar number of people that we have. So there's a lot that is being worked at the V-Mart level in the backend side. A lot of analytics, a lot of work on the data, data management, some work on AI. Some of those things are also happening. I mean, we will keep updating you but let me hand over to Anand and so that he can give you a little more detail about the results that we've announced this time. Thank you.
Thank you, Lalit, and good morning everybody. Let me take you through some of the key financial and operations highlights from the quarter and then we can open the session for questions. This has been a reasonably good quarter with like-to-like sales growing at 10% in aggregate with the Unlimited LTL also growing at 11%. There was a bit of a delay in the winter onset after Diwali which impacted the winter merchandise sale briefly but however it picked up in late November.
I think overall temperatures have generally been hotter in this current year than the previous years, reflecting an increasing impact of climate change which was also reflected in the lower peak winter days during Q3. However, efficient planning did not lead to any adverse impact on the inventory due to this.
But despite the winter challenges, the sales grew at a healthy 17% in the offline business with footfalls also growing by almost 40% in this quarter. V-Mart sales grew by 19% while Unlimited had a lower 6% growth despite a 11%, you know, LTL increase due to the adverse sales base impact of 12 unprofitable Unlimited stores getting closed in last year. So on a comparative basis, the base quarter of Q3 of last year included the sales of these subsequently closed stores, resulting in an apparent lower growth rate for Unlimited in the current quarter in this year.
Looking at the sales per square foot, the total sales per square foot increased by 10% for the quarter which was in line with the LTL growth. The SPSF growth for V-Mart increased to 927 and for Unlimited it was at 676 which was also 10% higher than previous year.
The average selling price remained flat for V-Mart while it grew by 5% for Unlimited due to changes in merchandise mix. The ASP should remain in similar range going forward but for any seasonal or mixed variations. The LTL sales growth was similar across all tiers with South India stores doing marginally better in tier three, tier four markets, unlike the tier one and tier two reflecting the success of replicating the V-Mart strategy of getting into smaller towns also in Unlimited.
For stores under V-Mart brand, the like-to-like sales growth was similar across almost all tiers. At an overall level, the festive period went off quite well. A substantial part of Durga Puja sales shifted to the previous quarter, thereby implicating a relatively softer growth in the east zone in this quarter. However, all other regions had double-digit LTL growth.
We opened 21 new stores during the quarter with 19 in V-Mart and two under Unlimited, taking the tally to 488 stores pan India, out of which 85 now are in South. All the new stores opened this year, including in South, have been performing well and in line with the established V-Mart business model. Moving on to gross margins, the total gross margin was at 35.8%. It was 30 basis points higher than last year despite a 38% lower revenue contribution from LimeRoad marketplace business, which flows in 100% into total gross margins.
So the improvement in gross margins came in at the back of better, fresh merchandise sales of new winter merchandise. However, on a go-forward basis, we shall be prepared to compromise on product margins to make the value proposition even more sharper for consumers and improve on inventory freshness through higher inventory turns.
Coming to expenses, at an overall level, total expenses were almost 3% lower than last year in line with the 3% reduction in Q2 as well. The continued reduction is due to the sustained significant reduction in LimeRoad online marketing expenditure, along with favorable impact of closure of the unprofitable Unlimited stores in the last one year.
The manpower cost was up by 24% on the back of increased incentives, higher minimum wages, and also the increase in the variable component of the ESOP liability, which is in line with the sales growth. There's a higher focus on employee reward and motivation to positively influence efficiency, which should further drive overall profitability and growth. Other expenses declined by 15% year- on- year due to decline in the LimeRoad business and consequent logistics cost apart from few other efficiency improvement measures.
Coming to EBITDA for the V-Mart core business, EBITDA for the quarter came in at 17.9%, which was 130 basis points higher than last year, and Unlimited at 15.4% due to the beneficial impact of closure of the loss-making Unlimited stores in the last year. For total V-Mart, including the 54% reduction in losses from the LimeRoad business, the total EBITDA for the company came in at 43% higher at 16.7% for the quarter.
Coming to inventory, the quarter closed at INR 818 crore of inventory, which was at 92 days. There's a lot of good work which has been happening on the product side, which includes a lot of technology-led improvements in designing, sourcing, quality control, and replenishment cycles, leading to overall improved sales and thereby better inventory health. This is still work in progress.
I think Lalit also alluded to this, and we will be, we are, undergoing a lot of projects, a lot of work in this area, and this has been our core focus of how to improve, the product side and thereby reflect, even better inventory cycles going forward. YTD CapEx has been at INR 83 crore, which includes spend on the 49 new stores and refurbishing of old stores.
The new warehouse, which has had a few initial operating challenges in the last year, is fully stabilized and, is helping improve the overall supply chain turnaround times. The working capital limit utilization has reduced by 70% since the start of the year and remains in a very comfortable range. Better profitability and improved working capital led to a positive net free cash flow of INR 59 crore YTD.
There is no long-term debt on the books, and we remain comfortable on the cash front with ample working capital limits available to leverage future growth, which will be financed mainly through internal accruals. Coming to store expansions, we opened 21 stores this quarter and 49 year to date with five closures. The pipeline for quarter four looks reasonably strong, and we should end the year with you know 50 + net store additions for the full year.
There may be three, four store closures in the current quarter, which is a normal practice as we will budget for 1% or 2% mistakes that will need closures every year. All the major corrections, one-time corrections have already been done in the last year, and going forward, we should see minor 1% or 2% closures on a need-to-do basis only going forward.
Coming to LimeRoad, the marketplace business remains in improvement mode. EBITDA losses already reduced by 54%, in this quarter year- on- year. This is the seventh straight quarter of reduction in losses at LimeRoad. The strategy on LimeRoad remains the same, which is to extend LimeRoad as the fashion forward only arm of V-Mart and facilitate very easy order placement, process by V-Mart customers through the LimeRoad app. Initially, for missing sizes or missing colors in the offline stores, but eventually extending it to offering a bigger catalog of products which can be offered beyond the brick and mortar stores.
Before I conclude, I also wanted to mention, that Lalit's elder son, Varin, has joined the company recently. Varin has completed his education from New York Stern School of Business and has also done stints with Kearney and U.S. Telecom and Strategy in the U.S. before shifting back to India in December. Varin has joined us in the operations team and is helping co-execute the future expansion strategy for the company along with Vineet in Vineet's team.
The company has also recently been awarded with the prestigious 2024 Institute of Company Secretaries of India award for excellence in corporate governance during the quarter, recognizing our commitment to the best governance standards. This recognition comes as a follow-up to winning the Golden Peacock award for corporate governance in 2022 and also the 2022 Certificate of Appreciation at the Institute of Company Secretaries National Awards for Excellence in Corporate Governance. That was all from my side on the operations and the business update. I now request the moderator to open the floor for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Tejas Shah from Avendus Spark, p lease go ahead.
Hi Lalit ji, hi Anand. Thanks for the opportunity and congrats on good numbers. Sir, just wanted to know, like, for example, last 12-15 months, clearly policy makers are trying to, they have first recognized and then they are now trying to solve the problem at the mass a nd you also spoke on positive sentiments. So just wanted to know the sustainability of the same A a nd B, when we look at our recovery and our numbers, which is on standalone basis, quite good, but now many of our peers also being listed. And when we compare, over there, there seems to be some, we are tracking below the median growth rate. So if you can comment on both of these points on growth.
Okay, yes, I think I've already mentioned about this and then we believe that there's nothing which should distort the aspirations or the consumption spree that we are able to see and w e should get a little more positive news going forward and then we should see more disposable income in the hands of consumer.
Consumer should feel more confident going forward as we see and more and more industrialization, more and more manufacturing capabilities has to come into India and will get appreciated here. I think we definitely have good plans going forward. We continue thinking because we've always seen that, you know, in this, especially in our markets, it do not behave as to the global markets.
It does not behave also as to the national urban market, but it does behave in, you know, once the consumption spree starts coming in, at least three, four years if the monsoons are good, we continue having good demand pattern coming in. We are positive. We are hopeful. We will continue targeting similar kind of growth and then maybe not exactly this one, but maybe mid to high single digit numbers. So that's what we are targeting a nd then I think everyone who is able to focus a little more.
Complexity has got developed in terms of fashion business because there's a lot of change in terms of the fashion wearings and the kind of product lines which are getting launched, the kind of fits which are getting launched and which are being accepted a nd there's a lot of complexity in terms of understanding the consumer versus the fashion because there are tiers and within the tiers, there are stores which will behave in a different manner versus a store which will behave in a different manner s o there are different consumer persona which has to be identified and the product has to be mapped within.
It involves a lot of complexity in terms of forecasting, allocation, understanding the consumer and understanding the behavior pattern of buying and then allocating such kind of product because the range has become a little more wider a nd there are customers who still believe in the classic designs and there are customers who now want the modern design s o how do you differentiate between the two and both the customers are important? So that's how you have to past through this transition journey.
And that becomes very complex for some of the retailers a nd retailers who are able to cater to that are then able to provide better growth. And these will be testing times for retailers, fashion retailers especially, especially in the next one year.
Lalit , on relative growth, how should we interpret the gap between us and median growth rate that we are seeing in the space?
I mean, Tejas, I may not be able to help you a lot. I told you, this complexity is there. So, I mean, comparison is very difficult. But yes, it is also a function of their own market. It is a function of their consumer segment. It is a function of how they anticipate the fashion, the growth, and then how they actually perform. There are hundreds of levers, as they say between the cup and the lip. So, well, it means many levers go awry, they are going to go wrong until the time the product reaches the customer at the right time. So, a lot of things have to get synchronized so that you actually deliver those outcomes.
I think if some retailers have delivered a little lower unless until they are targeting a different segment of consumer, unless until they are targeting a different price point in the market, they definitely should be able to get the benefits which is coming out of this market. We believe, I mean, I can't, I don't want to mention anyone who's doing bad. Maybe in certain phase of time, they might have not performed, but they will once again come back and perform. There are retailers who are East-based retailers because the Pujo sales have gone a little bit in the Q2 market also.
East-based retailer has shown because even our East zone, as Anand mentioned, has shown a little lesser growth compared to the other zones because there the market, the festival period has shifted to Q2. That is why maybe you are seeing some differentiated growth.
Got it, sir. So, second, how the new stores have done because we corrected a lot of COVID phase store shutdowns and then we actually kind of recalibrated in the last two years. So how they are doing and any guidance looking at the consumer sentiment you would like to give for FY 2026 on store opening?
I think for us, we have been very, very conscious because we have closed a lot of stores. A lot of learning has finally got plowed back into the decision-making processes on the new store finalization or new store search and new store opening.
All of those learnings are now being getting accounted. As of now, most of the stores that we have opened in this particular year and the last year have really given us one of the best sales per square foot in new stores in the last five years that we have opened. These stores which we have opened have given literally a better sales per square foot and more than the company average that we have clocked. I think we definitely are very conscious.
We don't want to go out and open up any other any store at any kind of rental because there's a lot of euphoria in the market to acquire property s o people are going out to give any kind of prices because the money is becoming cheaper as the multiples in the share market has gone up. So people are trying to raise funds at a lower cost and the cost of capital becoming lower. People are taking those kind of decisions also, which we are very, very clear that we don't want to go out in any kind of those spree.
We will be very conscious in terms of our rentals. We'll be very conscious in terms of the location that we open up. Then we just won't change number, but we'll definitely change the profitable number of growth that we are able to do with new stores.
Got it. So last one, inventory days have come down significantly and inventory looks very healthy. Should we expect that, assuming that there won't be any discounting pressure next year, would you use that tailwind to expand margins or you will pass it on to consumer to drive SSSG next year? And any guidance on any target that we are running for inventory days as well on improvement?
Okay, yes, these are all incremental areas. If I have my way I would make it tomorrow , but it, it generally doesn't happen like that. So it is all, there are a lot of efforts, as I said, a lot of efforts has to get synchronized and everything has to fall right. Even the seasonality, like this year, the January month has not been great because the winter, winter was topsy-turvy. Our winter was topsy-turvy. We did plan for our inventory. When you don't get a great season, maybe you need to discount a little more. You need to liquidate your inventory or maybe you get a little leftover on the inventory. So these are, these are synchronicity. We can put our efforts.
We will definitely want to bring in all those kind of automation, digitalization, analytics, which is required. But still there could be an outcome which may be in our hand and which can become positive. We would definitely want to better our days of inventory cover by reducing it by at least another 5% more, coming down to 87 days or 88 days. That's where we would definitely want to target. But yeah, the margins also on the other side, we would want to become a little more attractive in terms of value, providing to the customer because that is what will work.
And then because there are a lot of players across the road in the same street, which is providing and trying to provide the same customer with value, you will definitely have to be much more sharper in terms of the price. So margin leverage or margin escalation is not possible.
You may have to take down a little bit of cut in the margin also, but provide more value to the consumer to retain the consumer and also attract more consumer, which because the organized segment has got more consumer segment, more consumers in the market. Now it is about us, how do we attract them and retain them and give them the right and the best value which is possible. The value is not only about price, w e are not chasing price, but it is more about quality as well as the product, which is important.
That's all from my side, and all the best for coming quarter.
Thank you. The next question is from the line of Rishi Mody from Marcellus Investment Managers, p lease go ahead.
Yeah. Hi Lalit, am I audible?
Yes, you're audible.
Yeah. So Lalit, just picking up on Tejas's, when you responded on the rental piece from competition, right? Other retailers have also pointed out that rentals have escalated. So are we going to go for properties with lower rentals and maintain our store count guidance or are we going to reduce our store count guidance, store count addition guidance and wait for the good properties to come back once, say some stores fail?
I think that's the skill that we have and that's the skill that we are going to apply w e definitely don't intend to reduce our store count. We would continue to open similar percentage of new store addition or percentage of square feet addition that you would want to do. But yes, we just don't want to chase those numbers. We will be very conscious on trying to open up the stores which are profitable and it gives us a great, great return on investment.
So that is the underlying factor, and that is the underlying message which has been passed on to the team. And that is what we would relate, and we would want to. Maybe, maybe if there is a difficult period where you don't get a great property, but you don't get a great price, you may not want to open up.
You'll rather want to focus more on increasing the sales to sales growth rather than opening up new stores. We always keep this stance and we always have been telling this to the market and telling it to everyone that our growth would only come from our possibility of rental being at below 7%, 6.5%-7%. It cannot go above that.
Right. So I'll tell you where I'm coming from, right? So we've guided for, say, 60 store count additions over the next year. In the past as well, we've had an accelerated store count addition, albeit some stores which maybe pre-COVID weren't coming to the same throughput, but we maintained the store count addition. So just trying to understand, are we changing that stance going forward that we won't open stores in locations which won't give us the minimum throughput?
I'm not saying that I'm changing the stance, w e are saying that we continue having the same growth rate. You may calculate that to 60 or 65 or 55. I don't know how the calculation is working. We will continue to have similar targets, similar goal which we have passed on to the team a nd we would definitely want to open up and, and get the analytics because it's just not about city or it is just not about the town.
It is also the location in the city. It is also about the frontage of the store. It is also about the size of the store. It is also about the floors that you have in the store. It is also about the rental prop that you are paying to the store. It is about the various terms and conditions. So it definitely has a lot of involvement, but yes, the team is aligned. The team is very well skilled. This is a whole team. This is a strength of V-Mart, and we would continue to leverage that strength.
All right. Where the competition is setting up stores, right? Whether viable, non-viable, I'm assuming the store count addition rate of competition has increased on the back of the fresh funding that they have received. Are we seeing any temporary market share loss in, at say, any catchment level or region level? We might regain it, but in the nearer term, are we seeing that impact hitting us?
So I think as a overall, if you look at the overall retail market, I'm not seeing that happening. But yes, if you see at the organized share of market, see what is my percentage, market share in the organized share, definitely because the organized share, the number of competitors have grown. There are more than 12, 13 competitors or 15 competitors which are trying to open similarly. So you can't compete with all of them. So market share may go down within the organized share, but on the overall spree, yes, the market share is continued or is increasing.
Okay. Got it. Understood. And, finally, on the minimum wage increase, right? You called it out that Odisha, Jharkhand going into the state election increased the minimum wages by 25%-30%. Are we also seeing, like we have Bihar elections this year, we'll have U.P. elections a couple of years down the line. Are we hearing any minimum wage revisions coming in for these states?
I mean, it also depends because these states also have a lot of people who are unemployed. These states also provide manpower to most of the Indian states s o these states need their manpower to work in their state. But that won't happen if their minimum wages are not attractive, t he industries won't come in. So they want also to bring in industry. It depends.
It depends upon the state of affairs of that particular market and also what is the minimum wages. Odisha and Jharkhand, where at a lower minimum wages compared to other states, they increased sharply a nd there is a lot of activity which is happening in Odisha in terms of mining and stuff. But I don't expect similar to happen in U.P., but yes, something may happen in Bihar, but because they are also at a lower.
That will continue, and then that is what the risk that I have told and then narrated. That this is a risk which is in the short term a risk, pain, but ultimately it should lead to a higher GDP and higher per capita income, which should once again come back to the consumption.
Understood, sir. All right. Thank you. That's it from my end. Thank you, Lalit.
Thank you. The next question is from the line of Aditi Loharuka from CD Equisearch, p lease go ahead.
Hello. Am I audible?
Yes, ma'am.
First question is that what factors led the sales to go up?
I'm sorry, Aditi. Can you repeat that question?
My question is what factors led the sales to go up?
So it's a mix of multiple factors. It's not a, you know, a one factor. So one is Q3 usually is a very strong quarter for us a nd we've been doing a lot of projects, a lot of work around improving our own efficiency in terms of the product mix, the product quality, the product design, the what we source, how we source, from where we source, at what price we source, and making the customer proposition even more stronger.
It's been a continuous exercise for the last one and a half years, and thereby you will see, you would have seen, the sales improvement has happened for the last one and a half years consistently. So this is probably the fifth quarter straight where we have delivered good same-store sales growth. We believe that the work that has been going on is sustainable and is helping us build the momentum for even better growth in the quarters to come.
Okay. And, sir, what is, like, how do you think ASP of V-Mart will move over time?
I think we are very comfortable with the ASP where we are. There may be some changes because of the festival mix or the, you know, climatic mix, which happens from, you know, month- to- month or quarter- to- quarter. But at the level where we are, I think we are fairly comfortable.
Is there any inflation trend in raw materials or in consumer spending? Can you see that?
So there is a bit of inflation pressure that we see on the expense side b ut as far as the raw materials are concerned, I think cotton prices have in fact a little bit softened, but they have remained in a very narrow range throughout the year a nd we are not anticipating big changes in the cotton pricing going forward.
Oil has also remained pretty much you know very much in a controlled range. So we are not anticipating any pressure on the raw material front. But yes, on the expense side, on the manpower cost, on the rental cost, there will be inflationary trends, and it has been there you know also in the past. So nothing unusual, but yes, it will continue. It should continue.
So will those increasing expenses be passed on to customers?
We will try not to. We'll try our best efforts not to because our customer segment is extremely cost-conscious, and, we will want to therefore mitigate any normal inflationary trend through efficiency improvements and volume-led improvements. We will try not to pass on any more surprises to the customer.
Okay. So, what do you think is the primary of your priority, like retaining the customers or retaining the margins?
Absolutely, retaining the customers. We are absolutely very, very customer-centric. Profits are important. Profitability is the reason why we do our business. So every store, everything that we do is centered around profitability. But we will not want the customer to move out because of, you know, compromising on profitability a little bit. But yes, we don't want to get into a loss-making situation. Our focus always is to make sure that any location, any store that we run is profitable and continues to remain profitable.
If the expenses are going up, can we see any decrease in margins going ahead?
So Aditi, this is. You have to understand this business and understand its mathematics a little more in detail. Let me explain to you. Even if your cost goes up, the whole, the whole process of getting the margin has to be through higher volume and has to be through better sales or sales growth b ecause there is some element of cost which has to always keep going up, like rentals.
Every year you have got an increment, or every three years there's an increment, which is bound to grow. So now you have to see, and there's a labor, manpower, which is bound to grow. Every year there's inflation which is happening. There's some amount of cost which is going to. So that is the reason that we always anticipate a same-store sales growth.
You need to beat those numbers in terms of your same-store sales growth. All of these cost increments, if we do a same-store sales growth of around 4%, all of these costs get mitigated. Anything in delta of 4% same-store sales growth always gives you add, add betterment into your bottom line if your gross margins are constant. But if you, if you now become a little more sharper in terms of pricing, if you are not able to sell through at a, at a full price in the, in the gate, your margins get compromised, your gross margins get compromised.
So, so you may finally get into the bottom line. So don't worry. I mean, we definitely believe that the margins should be constant or should be growing, but as long as we are able to keep getting this, this whole same-store sales growth phenomena.
Okay. Thank you.
Thank you. The next question is from the line of Alia sgar Shakir from Motilal Oswal, p lease go ahead. Hello, Mr. Ali. Your line has been unmuted, p lease go ahead with your question.
Yeah. Sorry, I was on mute. Thanks so much for the question. Hi, Lalitji. I'm, Ali. So the question is on basically margins. So, you know, you mentioned that, from a gross margin point of view, you would want to be a little more sharper, you know, to improve the value, orientation. But, I just want to understand from a, you know, EBITDA margin point of view.
Now, when I look at it, compared from a pre-IndAS level, current EBITDA margin, would be still somewhere close to, give or take, around 400 basis points-500 basis points, lower than what you were doing probably pre-COVID. And I'm just saying Q3 number. Of course, YTD could be different, but I'm just given the fact that, you know, we are improving the numbers every quarter. I'm taking this quarter number. So still 400 basis points-500 basis points lower.
So, just want to understand, you know, I mean, the point that you mentioned that improvement in throughput will continuously improve your margin. What level of increase from the current, you know, throughput do you think should allow you to kind of reach your stable state margin that you were doing pre-COVID level, from a full year point of view? Any understanding over there will help. You know, I was just thinking from the point of view of the pre-IndAS level, this company can do somewhere about 8% kind of margin in terms of EBITDA and probably 0.5% margin. Then how much further throughput improvement is required to be able to achieve that?
Sorry, I mean, I don't think I know math better than you. So you are an expert in math. It is a mathematical question, and you should be able to answer that. I don't think I need to answer it.
Look, I, my point was more from qualitatively, more from the point of view that, you know, looking at that situation on the ground, you know, how much you think levers you have that will help you probably, you know, reach.
I mean, these are all, these are all perspectives. These are all subjective perspectives so we need to keep working on all of those. We need to always keep focusing because there is definitely a higher, higher, trust that the consumers are demonstrating on organized retail and this, this movement from unorganized to organized is making things much, much better and that is what India is all about.
That is what, and if their per capita income once again grows and they, they start consuming a little more and their, their disposable income is a little better, the share of urbanization increases, the share of consumers coming into organized space increases. Everything, I think, I think all of these will, will fold up into our basket.
And then definitely our own efforts and our own proposition, our own ability to understand them, provide them with the right assortment, mix, and merchandise, and give them those point of quality which creates a trust within them. So all of those will finally add up into the same-store sales growth and that same-store sales growth will finally bring in the margin s o we definitely believe we will want to be constant, but still, as you all understand, and we all know that there has been multiple number of competitors which have got evolved. There are higher ticket size competitors of conglomerates which are driving value retail.
Definitely there is going to be some pressure which is going to come in terms of value proposition because what consumer wants and what are you offering and what kind of designs are you offering. We are very realistic, w e are talking about that. We are just not talking about prices. We are also talking about product fashion quality because even that do cost. Even bringing you a new design, good design, bringing in a better quality, bringing in a better look and feel at the store, better service standards at the store, all of those do cost you. All of those are always also a caution. There has to be some differentiator a nd that differentiator is a cost. We will balance most of them.
But don't please don't. I would just want to remind you, don't start still chasing those pre-COVID numbers. The days were different. This age is different. So only still only stone age or digital age to must compare though. So it will be better that, you know, we do compare year- on- year methodology only. So those were times when you were alone in your market a lot of markets were there where you had a monopoly. Now is not the time where you had those complete state . But anyway, I think if we pass same-store sales growth continues, we definitely would not want to surpass any double-digit margin numbers.
We will definitely want to retain that number, but pass on all of those value benefits to the consumer so that the consumer keeps trusting us and keep coming back to us. Because you will see, because even now we see, even there are seven to eight stores opened up in a lane. Customer comes in at V-Mart, looks at V-Mart product, goes back to a competitor, looks at the competitor, comes back once again to V-Mart and then buys it. And that's what we want. They should compare. They should understand. They should understand and look at the entire market b ut they will do it 1x or 2 x.
Once they have a trust that V-Mart is always better and V-Mart is always better in quality also, then they will stop checking also with other competitors. So that's what we want in the future course.
Very useful, sir. Many, many clear on this. So just one last quick question is on the competition and your, you know, comparable performance. So of course we have 500 stores across multiple markets on the ground. Can you tell me, sir, how is the, you know, performance like- to- like? Are we growing at par with the market?
Are we growing in certain markets higher or any markets lower? Just general sense in terms of, you know, how is the comparison on a like- to- like basis on the ground? Because obviously on an overall portfolio, things can be very different because of the presence of different players in different markets. But on a like- to- like basis, if you have any, you know, insights to share.
See, I mean, as I mentioned, because the quarter saw Durga Puja coming in in the quarter too. The Durga Puja sales had gone into that. So, we saw a little lesser like- for- like growth in the Eastern market, Eastern India market. We saw very good growth in the Northern India market because the base for us also is lower in the Northern India market.
And some of our new initiatives, some of our fashion initiatives, some of those quality-led initiatives has really helped to grow that market a little better. We saw a good growth even in our Unlimited market. South India has shown a good growth. Within South India, Tamil Nadu has been a very good market. Telangana continues to struggle for us. Telangana is not giving us a great response.
So there are markets which have really done well. There are markets which have been almost on an average. U.P. was struggling until last quarter or last quarter, but U.P. has come back. U.P. has started growing. So I think U.P. is giving us because U.P. has a lot of, we have a big base in U.P. So U.P. has shown up. From a competitor's perspective, we have seen, I mean, most of the major competitors, even in spite of their good growth or their lot of new store opening that has been, we have seen, we still see a good growth coming in from those stores as well.
So I think those stores which get opened up even in the similar same mall of our store, we see a lot more customers coming into that market, more customers trying those stores. So I think it is a function of market becoming bigger, and that is ultimately leading into everybody's growth. So that is what we are also seeing, and that should continue. There could be some disturbances in a particular market, but otherwise most of the markets have really grown well.
Got it, sir. Very helpful. Thank you so much.
Thank you.
Thank you. The next question is from the line of Sameer Gupta from IIFL Capital Services. Please go ahead.
Hi, good morning everyone and thanks for taking my question. Sir, firstly, just your comment on Unlimited. Now, I noticed that sales per square feet in V-Mart is still 30% higher than Unlimited. These are the numbers that you report in the presentation.
Now, in the media interview earlier today, I heard Anand say that margins in Unlimited are now at par with V-Mart. So was this comment meant only for the new stores that you have opened in Unlimited? And can I just ask the pre-IndAS EBITDA margin level, any particular range that you can give for the older store group that you had originally acquired? And I believe that that number is less than 60 stores now. So just some color on this aspect, sir.
Yeah, Sameer, you are absolutely right. I think that comment was more in terms of the new stores that we are opening in South and that number is quite heartening and it is almost at par or even better than, you know, V-Mart stores. This is the new stores that we are opening in South under Unlimited. And yes, the older stores are still tracking well below the, you know, the norm.
Their sales per square foot is also slightly lower than the, you know, the new stores that we are opening. And the expenditure or the overheads there are also slightly, you know, more because of the higher square footage area. So the area size is slightly bigger. The catchment is, you know, more tier one, and thereby the pre-IndAS EBITDA still is lower than the, you know, the planned average for the Unlimited chain.
But, as I have, you know, said in the past as well, we continue to build on new stores in South. The new stores have better, you know, sales per square feet and therefore better profitability a nd as the proportion of new stores keep increasing, the overall profitability level for Unlimited as, you know, segment will keep on getting better and keep getting improved or comparable to V-Mart.
Sir, just a follow-up here. So these older cohort of stores, let's say, I mean, what I remember is around 58. You can correct me if I'm wrong. At, let's say, less than 5% margin on a pre-IndAS basis, their ROCE profile of the store would still be less than or sub 10%. So, do we keep, like beyond a point, do we keep these in the system? Because now it's been like, three, four years, and we've waited around for them to turn around. But, or is it an acceptable outcome that, you know, okay, it's a sub 10%, but still they're not making losses, so we'll still keep them in the system?
So Sameer, it's been a journey. So it's not like, see, there's a lot of internal review around each of these stores that we run a nd especially for the, you know, the Unlimited stores that we took over, there were many, many hard calls that we have already taken in the last two years. We've already closed more than 20 stores in that chain. And whatever stores that we feel, that we felt, required surgical action, that has already been taken. The number of stores that we now continue to run are strategically important, are important from different perspectives, and they are not loss-making. And we have faith and belief that we will be able to turn them around even better.
So it's just a matter of time that we are not building in aspirations of a INR 1,000 sales per square feet in these stores, but there are, you know, priorities, there are importances because of which these stores will continue to run, but they are not loss-making. They are profitable. Their profitability profile may be marginally lower, but they will also come at par.
Got it, sir. This is very, very helpful. One last question, sir, from me. There's one large retailer, Reliance, which has been consolidating its store footprint, and I believe some of it might be in the apparel, retail as well. So just wanted to understand from you, is there a meaningful difference between the set of stores where, let's say, Reliance used to be there and now it is not there versus where there is no Reliance, in the vicinity? Just this aspect, sir.
So for the matter, we, when we speak in the operation team, they say Reliance is omnipresent. So Reliance is everywhere. Whether they perform or not perform is a different question. There's been a lot of change in the strategy in terms of Reliance. So, we, the consumers are also confused. The store people are also confused. I feel Reliance has gone out of our bracket because their average selling price is almost 60%-70% higher than our selling price. So it is not becoming too relevant anymore. But yes, definitely, some of the Reliance degrowth or store getting closed do add up some number to our store, and then we see some betterment there.
Got it. Got it, sir. That's all from me. I'll come back in the queue for follow-ups.
The next question is from the line of Lokesh Manik from Vallum Capital, p lease go ahead.
Hi, good morning. Hello.
Yes, please go ahead.
Yeah, great. Lalitji, my first question was continuing from the previous participant. So the sales per square feet nine months Unlimited is somewhere around 500 versus V-Mart at 700.
Lokesh, are you speaking on the speakerphone? You, you are echoing. [crosstalk]
Yeah. Is it better now?
Yeah.
Yeah. So the sales per square feet, Unlimited is at 500 versus V-Mart at 700, whereas the ASP is almost double. Now the difference can be attributed to the volume. So just wanted to understand that is this more external where the consumer market is such that it's not more volume-driven or is it more internal at our end where we need to make further changes to increase the volume throughput and your view on whether it can come to INR 700, INR 800 per square feet, three to five years down the line?
So, Lokesh, we all know that, you know, Unlimited market, one, the per capita income of the consumers in South India is also higher, number one.
Mm-hmm.
Number two, the market there, we offer a little differentiated product, which has a little higher margin, also. And three, we also house there some branded products, which is called partner brand business, where some of the known brands in the market have been given some space in terms of stop and shop kind of model, which brings in almost 18%-19% of Unlimited revenue, which is at a higher ASP.
So that including all of those, you know, the ASP level looks much higher. And definitely, if you see the last four quarters, you must be noticing that there's a sharp drop in ASP's price, ASP of Unlimited a nd that is the focus that we are bringing in, that how do we give more consumers the more share of our kind of product, which is a V-Mart kind of product, and bring down the prices.
That is how we are trying to first get the little more mass audience, little more lower per capita consumer segment, and little more youth into our store a nd that is what we are trying to do. That is how we are also seeing some growth, which is coming in. Even this quarter, we reported 11% growth coming in from Unlimited market a nd we are seeing very good response from some such kind of store. We believe the Unlimited this particular quarter has almost given greater than INR 650 per square feet of sales. We believe we should be able to bring it to that level of V-Mart, maybe in the next two years. That is what we will want to do. But yes, the delta or the delta will be there.
There will be a difference between both of them, sales per square foot. Yes, but we are nearing to our proposition. Once the consumer there understands our proposition well, we will want to then slowly and gradually, you know, decrease the share of the bigger brands or the partner brands because anyway, our propositions are also similar to the partner brand b ut only the brand has a brand value where the South consumer still values that particular product.
Understood. Lalitji, the second question was on, you know, in the past two years, we've been focusing a lot on merchandising. So on the sourcing front, we may have, you know, even partnered with some of these suppliers, who are supplying to our competitors who are doing well at that period of time. How has been your experience from a quality perspective, getting these new suppliers into the system and seeing how their quality is indexing with the past V-Mart suppliers? How has that difference been in your view?
That is, it has been a very tough journey, Lokesh. It has not been very easy to bring in change management in smaller entrepreneurs across India a nd that is the toughest part of growing up and then becoming organized, you know, bringing them on the compliance, bringing them on sustainability, bringing them on the quality parameters, bringing them on the scalability part. So we've done a lot of workshops with the vendors across cities because as we speak, there is a workshop going on in Tirupur. So we keep doing workshops across cities. I have participated myself also in two or three workshops because we keep giving them those instructions, keep teaching them about things.
There is a complete big team, which is the quality team, which is technical team, which helps them go down to make, create better processes for them, create better quality parameters for them a nd then definitely we have taken a little more stricter measure on the acceptance of quality norm and what quality can be accepted, how do we test, how do we try out those products.
So there's been a lot of shift, t here was definitely a lot of resistance. There's been a lot of rejection. Last year, we faced a lot of shortages of inventory because the product got rejected and people were not able to supply us in time. So some of these problems were there. Our existing suppliers have really come up well, and even we have brought in a lot of new suppliers a nd we are seeing a lot of betterment in all of those a nd that is what we want to give. Ultimately, our consumer trusts V-Mart and we should not be giving them anything which is substandard. That is our goal, and that is our motto.
No, fair enough, Lalitji, because that correlates with the point that your customer comes back to you after experimenting everybody else. I was just trying to understand if these new suppliers, the quality was much lower, to what they were supplying to the other competitors and, you know, are they, are they facing difficulty matching V-Mart standards and at the price point, you know, your more cost consciousness?
Everything is doable. It just requires better processes and better care. So that's all. It is an intention issue and then a discipline issue. So if, if that is, it doesn't cost too much. It is only.
If there have been, you have put some of them out of the system, the new ones if they did not match, and you know, they could.
Definitely. Almost 20% of the vendors have got blacklisted.
Understood. Understood. That's it from my side, Lalitji. Thank you so much.
Thank you, Lokesh.
Thank you. Ladies and gentlemen, due to time constraint, this was the last question for today's conference call. I now hand the conference over to the management for closing comments.
No, thank you so much for being there. We have spoken enough and a lot of inputs have been given. Not too many retailers come out and speak to, all the analysts and speak and bring out their detailed data. We do, we do give them. I would appreciate if people have, have a little more trust on us and then we will continue definitely giving out more, being more transparent, being more, more agile in terms of providing the data.
But yes, there may be a few things that we would want to now strategize and work which every time is difficult to open up. But yes, we'll continue doing that. Thank you for being patient with us, and we will continue delivering the best value proposition to all our ecosystem and, entire ecosystem. Thank you so much. Have a good day.
Thank you. Bye.
On behalf of IIFL Capital Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.