Ladies and gentlemen, good evening and welcome to V-Mart Retail Q1 FY 2026 earnings conference call hosted by Avendus Spark. 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. Tejas Shah from Avendus Spark. Thank you and over to you.
Thank you, Ms. Saha. Good morning, everyone. On behalf of Avendus Spark, it's our pleasure to host the V-Mart FY 2026 earnings conference call of V-Mart Retail. Joining us today from the management team are Mr. Lalit Agarwal, Managing Director, and Mr. Anand Agarwal, CFO. I'll now hand over the call to the management for the opening remarks followed by the Q&A session. Thank you. Thank you.
Good morning, everyone. Good morning, Tejas. Thank you so much for introducing us and hosting us. Wonderful to hear you back and come back to you with our Q1 analysis. Nothing very different. The business looks better, good customer sentiment in the market, in Bharat looks okay. I would not call it as a very, very high customer sentiment in terms of consumption, but yes, it's positive. It's not too bullish as of now because the period and the seasonalities are such. We expect it to grow during festival, which is definitely something we are seeing, the undercurrent is very strong. The consumption, the reasons for consumption have changed. The reasons for celebrations have changed. There are more occasions that the consumers are celebrating. There are more reasons why they are buying. This is what we are seeing as consumer sentiment.
Accumulation of all of that is equal to consumer sentiment. That is where we expect more spendings to be done, could result into a lesser saving, which we are already seeing. The saving rates are going down, which could be a scenario. Yes, largely, we expect, because of the reason, the decisions or the way the government is behaving, the way we are seeing industrialization coming in, the way the macroeconomic conditions and the global moves are happening upon tariffs and all, we expect all of that to get benefited for us, for our Indian consumers, for our Indian industries. That should lead into more per capita income. That should lead into more adoption or more consumption. More fashionism will creep into the market. That is what we believe. Inflation definitely has been under control.
That is definitely not creating any concern for the consumer because our consumers are severely worried about that staple inflation, the basic vegetable, fruit, and the staple. That inflation seems to be under control in spite of MSPs growing, which is leading into more money into the farmer's pocket and the related party's pocket. I think all of those are good news. Monsoon looks better. Yet till now, we have seen very excellent monsoon coming in. There's no scarcity. Certain territories, like Bihar, we still see a little low on the monsoon, but otherwise, most of India looks good on the weather pattern. I agree. Crop looks to be, the income from the crops should be good. That should drive the rural consumption. That should upkeep the rural consumption. We are a little positive on all of those things.
Definitely, consumers have their own seasonality when they buy and why they buy festivals. The last quarter we saw some marriage rates coming in in the month of May compared to last year. We did not see too many footfall growth, but yes, there was a growth. The marriages, comparatively, were more. Still, we saw average consumption. We didn't see a huge consumption. Yes, the footfalls have been good. It has been positive. We are seeing a little higher footfall also on the streets because of more stores getting opened up. We are getting a lot of good feedback. We are taking a lot of customer feedback from the customers in terms of what do they consume, when do they consume, how would they buy, what are they looking like for the future or for the festivals. We are seeing a good sentiment even in the consumer segment.
We definitely have seen a lot of competitor aggressiveness coming in from all the sides, right from the national competitors like Rudios and others, and from the regional competitors or even the larger regional competitor, like V2s, growing very aggressively. There has been a lot of store openings. There has been definitely a lot of working which has been happening in the competition space. People are creating different strategies. Somebody is working towards very high density and high variety and high depth kind of proposition to the consumer. On the other side, there are retailers who are trying to create a little more experience by giving lesser assortment but catering to a particular niche. There are those differentiated competition and differentiated consumer set that they're targeting, which we are seeing in the market, which is creating more.
The good news is that it is creating more footfall in the organized space, which is creating more belief for the consumers in the organized space. That is becoming very evident. That is something which is very, very good. That gives us a lot of confidence that people who can really deliver, people who can really work well towards giving that consumer segment that kind of experience, they will definitely get the benefits and we get the impact. The area of organized retail is growing and will continue to grow is what we see. For us, we've been really focusing high on our back end, even on agility because we believe there's a lot of change which is coming into the market. There's a lot of change in the fashion as AI is penetrating into everybody's thumb. Things are moving a little more dynamic, right?
That is driving the creatives, the kind of experience that the consumer wants, the kind of fashion the consumer wants, the number of times that the consumer wants to see differentiated fashion. There is a dynamic or a more agile decision-making that we are trying to get into, which I'm trying to work on the processes. We are trying to work on the kind of technology that we have, the way people are working. We are trying to bring those into the organization so that we are becoming a little more faster. We are becoming a little more agile. We are becoming a little more analytical and aware about what the consumer wants. That is how we are driving our philosophy of serving the consumer, right, from forecasting to the product management and the product designing.
That is where a lot of work has to be done and a lot of work is being done, bringing in some technological tools to try and drive all of these things. Gross margins definitely is something which is, which is, we saw good gross margin coming in. Going forward, we still focus that we will be, we should be focusing more on the routine, routine gross margin rather than the percentage gross margin. That is how there would be certain product categories where the percentage gross margin could go down a little bit, that's the plan going ahead. Largely, we still want to maintain because if we do that, we believe that the full-price sell-through should also grow and full-price sell-through should be higher. Ultimately, all of those should result into positive EBITDA, and that's what we are believing.
We are expecting a healthy, consistent growth rate from the same store, and we should be doing that as we have been performing in the past quarters. We should also open up stores. There is a sort of big pipeline which is getting built in the team. There's a lot of store identification that has been done. We are on the path to open at least 13%-14% of our square foot area, additional square foot area in this year. That is what we are on to, and we are on targets. We are on track, as far as our expansion cycle is concerned. There may be a few closures that may come in. There are one or two closures that we did in the past. We will not hesitate closing down some of the stores where we don't have an expectation or confidence where we can build business.
We may make a call on 7 or 8 or 10 stores going forward as well. Other than that, I think we definitely have a clear strategy for our online digital business. That digital business is becoming more roaming. That is definitely the only piece is getting integrated when the costs are being reduced, the efficiencies are being generated. There is more that we are trying to generate. It's less. We don't believe in just tracking the revenue growth. We are tracking the breakeven point. That is what we are all working towards so that we are able to break even or create a profitability index in our only or in our online business. That's the path that we are taking.
We are not focusing too much of our attention on that while we are discussing on all this, but we definitely have that thing, and there is a different thing which is working on it, and they are very clear. That team, with the technology knowledge, with the analytical knowledge, with the kind of knowledge that they have over AI and stuff, they are helping the overall business to grow and become more analytical and more AI-driven. That's the path that we are taking here. Ultimately, I really want to thank the entire team who has been working so hard to bring in this kind of growth, maintain the customer experience. We've got very good repeat rates. We've got very good feedback from our customers in the NPS score. We have seen good, consistent feedback from employees. We believe our governance principles are good. We will want to continue that.
We will definitely want to motivate our people. We definitely have a great ecosystem with our great lender base and everyone. I think we definitely believe that the confidence that the team has, the confidence that our processes have, we are very clear that we should be able to act in the right spirit. We should be able to use the growth story of India, the growth story of Bharat, and that is how we will want to penetrate more into the smaller town or more into the new towns or existing cities where we see there is more potential. We are definitely growing more and more in those cities, which are largely state capitals and bigger cities of the state. We will definitely keep working on those. We are largely on track.
July seems a little slow, but it should immediately come back in August and September when the festival starts coming in right from [Rajhavan]. We are expecting a better Q2 because the festival will move in a little bit. The Pujo, the Durga Puja season is a little preponed or 7 days- 8 days or 10 days. We should expect a little better September month or the second half of the September month. We definitely are preparing for the entire festival as well as the winter range. The kind of products have to be launched. There's a lot of innovation which is happening around fabrics, a lot of innovation which is happening around designs. All of those innovations are being used. There's a lot of integration which is happening with new loaners, main vendors, the design team.
Some good activities happening on that side for the preparation of the current, coming up festival period and the winter period. That is where we all are. We'll keep you updated. I'll just pass this to Anand so that he can take you through the numbers, and then we'll be open there for the questions. Thank you so much.
Thank you, Rajesh, and good morning, everyone. Let me walk you through our quarter one performance and the key developments, and then we can open the show for questions. Okay, so starting with sales, despite the shift of EBIT in the previous quarter, we saw increasing traction in this quarter, making it grow by 13% year-on-year, with V-Mart's lock-in, actually 14% and Unlimited at 12%. The growth was driven largely by continued increase in footfalls and memo count as well, aided by a very good wedding season, but slightly impacted due to the Indopak conflict in select areas in North India and also the early onset of monsoon in June. Our assortment has become much younger and more relevant, and the pricing is much softer.
The total apparel ASCs grew by 1%, with 2% growth in V-Mart and a conscious decline of 3% in Unlimited due to the ongoing shift towards more value-led offerings. Adjusting for the preponement of EBIT, which fell in quarter four this year instead of quarter one like last year, we normalized SSG, HCM at 5%, with both V-Mart and Unlimited contributing HCM EBIT. From our business standpoint, the north states of Rajasthan, Uttarakhand performed much better, while the eastern region continued to face some amount of challenges, particularly around the Bangladesh border areas. Moving to margins, our gross margins excluding Limeroad.
Sorry to interrupt you, Mr. Anand. Actually, your voice is echoing. Can you please check your device?
Is it okay now?
No, it's still echoing.
I can't. Let me go out and move into another room then.
Yeah, you can, or else you can use your phone.
Is this better now?
Yeah.
Is this okay?
Yes, thank you.
Okay. Yeah. I was talking about margins. Moving on to margins, our gross margins excluding Limeroad improved by 60 bps to 34.8% on the back of better full-price sell-throughs and liquidation of old inventory, which released provisions. Total gross margins, however, improved marginally by 10 bps to 35.3% due to the 48% decline in Limeroad revenue contribution, which goes entirely into the gross margin line. We are working on implementing a sharper margin strategy, which will help reinforce our value positioning and ensure even fresher inventory through higher turns. Coming to expenses, we continued to see the benefits of stylish cost control. Operating expenses were 160 bps lower compared to last year. This was largely due to significantly lower online marketing spends on Limeroad, partially replaced through higher sourcing of online-only orders through the V-Mart store.
Manpower costs rose by 13% in line with new store opening and variable incentives and e-shop visit costs. Other expenses declined by 2.6% year-on-year, thanks to the lower marketing in offline business, also along with lower logistics and marketing costs from online business in Limeroad, together with a few other structural efficiency measures. Due to the changes made in India's accounting policy in the last quarter, the go forward depreciation on fixed assets should now come at around INR 28 crore per quarter, versus the erstwhile INR 19 crore, while the depreciation on ROU assets will be around INR 40 crore, which shall keep getting adjusted with new store additions and retirement cycle as the business grows. Similarly, the finance cost, which has two components, actual interest cost and the accounting finance cost on ROU liability, will also transition.
While these changes happened in the previous quarter, I think in the interest of all the analysts, financial modeling, I just thought it might be better to discuss this point right here. Similarly, the actual interest cost outgo shall vary as per the working capital deployment, but should remain range-bound at around INR 3 crore-INR 5 crore per quarter. The notional finance cost on the ROU liability should come down from INR 32 crore to approximately INR 11 crore on the current scale going forward. Again, for the interest of all the analysts, in case you require any help with the financial modeling, we'll be happy to set up a separate one-on-one call on the changes made in the India's accounting separately. Please get in touch with the IR team or me separately on this.
Coming to EBITDA, excluding Limeroad, we delivered an EBITDA margin of 14.9%, which is 80 bps higher year-on-year, driven by operational efficiencies. Including Limeroad, where the EBITDA losses reduced by 56% year-on-year, our total EBITDA grew by 27% and margin improved by 170 bps to 14.3%. Coming to inventory, we closed the quarter with an inventory of INR 818 crores, translating to 93 days, which is a 5% improvement over last year. First store inventory increased marginally but remained healthy. The provision for aged inventory came down significantly from 1.7% last year to 0.7% this year, this quarter, reflecting better inventory health. This has been enabled by liquidation of old inventory during the quarter, along with technology-led improvements across design, sourcing, quality control, and replenishment cycle, leading to better sales flows and thereby lesser leftovers.
While the CapEx stood at INR 30 crores, primarily towards the new store openings and refurbishment, we continued to invest in expanding the store base and refurbishing existing older stores, and the results are visible through sustained footfall and sales monitoring. On the liquidity side, working capital utilization, which had temporarily spiked in quarter four, is now back to INR 35 crores. While this may go up in quarter two due to seasonal stocking, we expect it to remain within a comfortable range of average around INR 90 crores-INR 100 crores for the entire year. We generated INR 109 crores in free cash flow this quarter, largely due to efficient inventory management. There is no long-term debt as we have always maintained, and we are well positioned to fund future growth through internal accruals. On the new store openings outlook, we added 15 stores this quarter and closed two.
Our guidance remains unchanged. We are targeting 12%- 15% net area addition annually with 1%- 2% closures, which will be normal closures in any year. This year, we should see an addition therefore of around at least 65 new stores. All the major store corrections have already been done in the last two years. Going forward, we expect only small need-based fixes. That was all from my side. I now request the moderator to open the house for questions.
Thank you very much. We will now begin the question and answer session. Participants present on the audio bridge who wish to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mr. Param Vora from Trinetra Asset Managers. Please go ahead.
Congratulations for a great quarter. What I wanted to ask was the company added 15 new stores in quarter one of financial year 2026, bringing the total to 510 stores. What is the target number of new store additions for the full financial year, and what are the specific criteria for selecting new locations, particularly in tier 2, 3, and 4 cities?
Hi. The full-year targets for the new.
Sorry to interrupt you, sir. Mr. Lalit , there is an echo from your line. Can you please check it?
Yes, sir. Hello. Yeah.
It's still echoing, sir. Sorry.
Yeah, can you call me back on my mobile number?
Yeah, sure. I'll call you back.
Thank you. Let me answer the question. The full-year forecast for the new store addition should be around 65 net new stores. We are looking at adding slightly more, but there may also be some amount of store corrections. Net-net, we should definitely look at 65 new store additions for this year.
Okay. Sir, what are the specific criteria you look out for when you are exploring new locations in tier 2, 3, and 4 cities?
is an established site selection playbook that we have been using for at least the last 20 years. We look at multiple criteria. We look at the population density, the demographics, the growth of that particular city or town, and the nearness to an existing V-Mart store. There are multiple things that we look at. There are at least 500 checkpoints that we have to tick before we select a site. At least in the last 5 years, 7 years, 10 years, I think the job has become slightly easier with the advent of technology and as more competition selects a lot of new sites. It becomes more democratic and easier for all of us to attend. At the same time, there are also challenges in terms of real estate cost and the same site being selected by multiple people.
Okay. Okay. Thank you, sir.
Thank you. The next question is from the line of Sameer Gupta from India Infoline. Please go ahead.
Hi, everyone, and thanks for taking my questions. First of all, congrats on a good set of numbers. On the same-store sales, while this has moderated, even on a normalized level, if I look at it, it is still lower than the previous quarters, what it was clocking in Q2 and Q3. It is not only V-Mart. I see the other players who are into value retail in tier 2, tier 3 mostly. There also, there has been a decent slowdown, even if you look at the normalized numbers. I just wanted to understand, what is going on on the ground? Is it the briefs catching up primarily, or is this changing some competitive dynamics, or the unorganized channel coming back suddenly? Any color on this is useful, sir.
No, I don't think there is any such movement happening in the market. This is a normal routine. Definitely, because the monsoon has got a little preponed, most of the festivals are getting a little more preponed. There could be a little bit of that impact, which is getting there, because once again, I'm normalized around EBITDA, but we don't know whether that EBITDA normalization for us is the right or the right way to look at it. There is some amount of that kind of movement, but otherwise, we don't see, as I said, there may be a little bit of sluggishness in the consumer set also, which we could realize because it is happening across the market. Ultimately, it is more period to period shift which is happening. I don't think there is a lot that we can drive from this.
Got it. You will still be looking at a mid- to high-single-digit SSG for the full year?
Yeah, I think we are looking at. See, there is an impact that we can see in our once because also there's a large consumption which also happens from Bangladesh, and that's one consumer set which has stopped coming completely. In the eastern part of India, especially, we see a lot of those consumers also are an active consumer to come from a lot of our stores. We've seen some drastic downfall in their footfall, leading to sudden degrowth in those particular territories. That is also creating a big impact in this particular outcome.
When does that anniversary occur? I believe the disruption happened more than a year ago.
No, it happened only three to six months back. Major disruption started, it started right in October, November last year also, but it was not major. The majority happened in this particular calendar year.
Got it, sir. This is very helpful. Secondly, sir, on the margins, now we have clocked, if I look at it on a pre-Ind AS basis, we have clocked around 7% this quarter. If I exclude the losses of Limeroad, which would go up to 7.5%. Historically, your full year is very close to what you do in Q1. I understand there is seasonality in Q2 and Q4, Q3 is always higher. Q1 normally mimics the full year for you if I look at historical trends. Now, with Limeroad losses expected to moderate further from here on, FY 2026 EBITDA margin on a pre-Ind AS basis, for V-Mart as a whole, it could be at least 7%. Now, what, I mean, is this a wrong logic to look at?
Your logic is entirely correct, but let me just try to be slightly more conservative. I don't want to give a guidance or a high guidance. We are definitely, right now, as you rightly said in the beginning, quarter one has not really been a very good start in terms of the SSG. We are hoping that quarter two, quarter three, we should get better results. At the same time, we are also trying to rework our product strategy and our margin strategy, and we are looking at higher rupee margins rather than percentge margins. While at a rupee EBITDA margin level, rupee gross margin level, we should definitely see more robust growth, I will not be so bullish on the percentage growth.
I take your optimism, but at the same time, I will still want to be slightly more conservative and be more constrained in how we build our numbers.
I understand, sir. Let's say you are doing a lower value product that should technically then lead to higher SSG growth, and finally, the leverage should kick in to give you a better margin in any case.
No, you're absolutely right, but till the time that happens, I don't want to give out a guidance. We will want to do that, but right now, I can't see that this is something that we should build in for the entire year.
Got it, sir. I'll come back and let you know for any follow-ups. Thanks.
Thank you. The next question is from the line of Aditi Loharuka from CD Equisearch Pvt Ltd. Please go ahead.
Good morning, sir. My question is, what is the competitive advantage in vendor consolidation?
Aditi, can you explain what do you mean by vendor consolidation?
Last time when we had the call, you said that due to vendor consolidations, you are being able to increase your sales and you are getting better margins and your cost is also low.
I think we are working with the vendor in trying to create a seamless process where we integrate with the leads, we integrate with fabric manufacturers. We also look into their costing mechanisms, create a more transparent cost-based relationship, bring in efficiency in their manufacturing processes. For the sake of saying that vendor consolidation, I mean, definitely, there was a lot of work that we did, but in this particular quarter now, we are once again trying to become a little more open on this particular space. There's a lot of finding and designing, a lot of new innovations which are kicking in. There are a lot of new types of vendors also which are coming up, which are startup vendors, which are new vendors, which are young vendors, which are also creating a good impact in the process.
I would not really call out for vendor consolidation in this particular year, but yes, we'll definitely work more on the cost philosophy in this particular year.
Sir, how is it different from what other players are doing on day-to-day vendor consolidation, or is it just you doing?
I will not be aware of what others are doing. [Foreign language] मेरे को अपना ही संभालना संभालने में मुश्किल हो रही है। मैं दूसरे का क्या संभालूंगा? Don't try to compare with me and don't ask questions about that, but I can tell what are we doing and what is the change in our philosophy and philosophy that we are doing.
Okay. Vendor consolidation initiatives must not have led to a reach to an optimum level, or the work is still left to do in that area.
There is definitely a lot of work which can be done, but we saw a risk in also larger vendors and bigger vendors. We don't want to rely on lots of bigger vendors because the exports also seem to get opened up. Markets, the tariff policies of the U.S. have really shaped the market. We saw some risks coming in, which I also highlighted in the last call and last one. We don't want to really bank too much on key vendors and top vendors. We want to spread out that vendor base as well.
Okay, sir. Thank you.
Thank you. The next question is from the line of Tejas Shah from Avendus Spark. Please go ahead.
Hi, Lalit. Lalit, for a while, we have been talking about working on our product side, on product as a pillar for strategic intervention. Where are we in that journey? As an outsider, how should I assess? Will it be higher throughput or better gross margin? How should I kind of validate that it's happening?
Yeah, I can say ultimately, we all work towards that. There are those leading indicators that you work on so that you are able to finally deliver a higher throughput. That's the key thought process that we are driving. Not very clearly, higher margin is also an outcome of your full-price sell-through. Then how better can you drive a full-price sell-through? How lesser do you have a stale inventory or a leftover inventory and discounted inventories and discounted sales? All of those are our calculation arithmetics based on the graphs, based on the scales, based on the learnings, based on the capabilities, and the alignment of things that we are doing. All of that is happening. How do you assess this?
Definitely, you can assess it when you visit our store, when you look at our stores, when you go and talk to our customers, when you try and gauge the market. That is the best thing that you do. Otherwise, it is very difficult for us to really understand [Foreign language] क्या होता है। हमें भी नहीं पता लगता है कई बार। होने के बाद ही पता लगता है।
सही है ना? The second, Lalit, you are picking up for many retailers, not only on value side, but across the metro to tier 2, tier 3, that rentals are actually becoming very costly because the space has become very crowded, retail in general. Any reason to there?
No, I think we have been always saying that rentals is a game, which is always a negotiation power, negotiation skill game. The kind of property that we look forward to, it is also an expectation that the brand has and the kind of space that the brand gives forward. Not that every property couldn't be consumed by a few retailers. There are a lot of properties that are getting built also because as the market is growing, as the consumers for the properties are growing or the retailers are growing, similarly, the developers and the small-time developers are also growing and the land is getting consolidated to build those kinds of properties which could be let out to the retailers. I think it is ultimately a demand and supply game, and it is always going to be whenever the demand is higher, the supply is also growing.
It will become higher. It is a temporary phenomenon. There is definitely a rise in rental that we could see. We have seen that. There is a rise in rental of our existing stores also whenever we are going for renewal. That is definitely happening. Similarly, we need to expect the market to also grow. We are not raising our bar too much. We definitely work towards our IRR mechanism. We don't want to go beyond what we could queue on exercises. We are very conscious of that fact. We will not grow too much if that becomes a bottleneck.
Last thing, Lalit, I'm not sure how relevant this question is to you, but now, quick commerce guys are stating that they are seeing some proof of the concept in tier 1, tier 2 also. Wherever we are doing grossly, are we impacted or is there any overlap where quick commerce has started and we are seeing some impact on our numbers?
Exactly, I would not call out that for 80% of the locations, but yeah, maybe 20% of the locations, I could see some discussions happening. There is some muted growth or degrowth as well in certain towns where we are seeing an aggressive penetration of these quick commerce, especially in this particular food and non-food segment. That is not too big, and for us also, that area is not too big. We don't mind it. I don't see other items creating an impact. The other impact may be about the item.
Perfect. Thanks. I'll come back in case there are more questions.
Thank you. The next question is from the line of Ashish from Leo Capital. Please go ahead.
Yeah. Congratulations on the good set of numbers. I have one question. How does the price point compare versus Hesse, Style Union, Yousta, and other competitors in the market?
I hope, I'm a list that it don't fit you and that he they should be able to give us a good outsider information. Anyway, we believe, I mean, Style Union, [Yousta], and all of those, they definitely are a little more urbanish retailer. We definitely are a little more mass retailer, and our price point of similar items should be at least 15%- 20% lower. That's our goal. That's our expectation. There may be certain products where the prices are almost similar or the prices are even 5% or 7% higher for us. I don't even gain across that. There could be some entry price point that depends upon the strategy of a retailer where they want to lure with some product and keep their margins low on certain products. There could be some competition on a particular item.
Otherwise, on an average, we see the kind of retailers that you named, it is almost 15%- 20% delta that their prices are versus ours.
Got it. Got it. Secondly, I think you partially answered this, but I wanted a better view. How is the overall demand scenario for value retail, and what sort of SSGs do you expect on a full-year basis?
Very difficult to give you a number and give an answer, but yes, we are positive. We are definitely building our business plan, our planning, our sourcing, our buying plans from the number that we had displayed in the last four quarters. We are definitely building. There should be a little higher single-digit sales growth that we should be expecting in the next three, four quarters. That is the area, and that is how we are actually building our complete merchandise plan also.
Got it. That's all from my side. Thank you so much.
Thank you. The next question is from the line of Bhargav from Ambit Asset Management. Please go ahead.
Yeah. Good morning, team, and congratulations for a good number. We just wanted to have some clarification on your statement that EBITDA margins may not go up, but EBITDA per piece may go up. Does that mean that we are trying to focus on increasing the AST or increasing the average bill value?
Bharga Ji, it is not necessarily that AST or bill value will drive that EBITDA or the growth in RGM. Yes, definitely, there is a focus during festival. The AST should go up. As we are seeing consumers becoming a little more aware, digitally aware, socially aware, we are seeing the likings of better products a little more during festivals period and during festival engagement period. We are expecting a little rise in the AST, and that's how we are trying to work on it. Otherwise, it is more about trying to sell a little better product a little more if there is a constraint from certain price limitation of my customer, and there's some product which I may not be able to offer because of that constraint.
That is where I want to apply a pricing principle with a little compromise on margin so that we are able to deliver those kinds of product lines also to my consumers who can afford in a particular price limit. That is what the policy is. Definitely, that may incrementally give a little higher AST. I'm not too sure about the average bill value, but yes, there should be a delta of 3%- 4%. Could be a delta of 2%- 3% shift in the AST that should drive it.
Secondly, sir, after a long time, we are seeing some good manufacturing investments happening in the state of Bihar. Do you think, with more and more manufacturing coming in and with employment opportunities rising in those industries, we will tend to sort of benefit more given our presence over there?
Yeah, I mean, definitely, that is one of the poorest states that we are catering to right now, and the per capita income of that state is very low. We believe anything which is happening in that particular direction, which increases the per capita income of that state and then brings about more prosperity in the state, will definitely result in a better outcome for us because we are almost present in all the districts in Bihar.
Sir, incrementally, are we looking at opening more stores in Bihar?
As of now, there is no anxiety. Definitely, as that ground is, it is a battleground for both the North Indian retailers and the East Indian retailers. It's a real battleground where most of the retailers also are penetrating a lot. As of now, it is too early for us to say that there is industry which is coming in, employment which is getting generated. Those plants which are getting built, those new red lines that are getting built, but still the factory walls and the factory sheds are yet to be there.
Lastly, sir, last year we did a negative free cash flow. Is it fair to say that this year we'll possibly end up making good free cash flow given that first quarter has been fairly strong at more than INR 100 crore?
Bharga, we will like to reinvest a large part of whatever cash that we generate into opening new stores. I'm not looking to accumulate cash, at the same time, I will definitely want to have a positive cash flow. Again, as I said, I will want to reinvest back into the business as much as possible.
Great, sir. Thank you very much, and all the very best.
Thank you. The next question is from the line of Ankit Kedia from Philip Capital. Please go ahead.
Sir, two questions from my side. First is on the AMP expenses. This quarter, given that the EBITDA was early, the AMP expenses were nearly 100 bps lower, which led to the margin expansion. For the remaining three quarters, given that festivities are there and you know hope for a better demand environment, will we maintain our 3.5% advertising expense for the full year, or you know the savings in this quarter will be saved and reinvested in product and other places?
Ankit, from the last two, three quarters, we have begun the downward trajectory on the advertisement and the marketing expense. Particularly on the Limeroad side, there is a significant reduction, but even on the offline business where we historically used to average around 2% in marketing spends, 2.5% in marketing spends, we are targeting to bring it down. Maybe not as drastic as what we have done in this quarter, because quarter two is the build-up for, you know, the festive period. There will be reduction, but not very, very drastic.
Sure. My second question is on Unlimited. With most of the urban-centric retailers in value sizing being more in the south, are we looking for more product differentiation in south versus north now compared to when we acquired Unlimited, and how much is the overlap between the products in south and north? If there is a difference, how is the throughput difference coming in from south and north, especially for the new stores we have opened because they are clocking much more compared to the older stores? From an Unlimited perspective, the journey towards high single-digit margin over the next two years, how confident are we with the product shift?
Ankit, see, definitely, there's been a little bit of convergence that we are trying to drive from the product's perspective as well, or the price range, or the product quality, or the product type perspective. Still, there is a differentiated behavior that Unlimited has. Almost 50% of the product, if I say, in a usual time, is almost common. The usual time is largely the spring, summer, the just starting of the festival onset time. During winter period, it changes a lot because of the seasonality. Still, we see definitely good traction coming in on whatever new product infrastructure that we have done, which has brought in success at V-Mart also, especially what you said about the new stores where we have done a little bit more. The new store is more like a V-Mart proposed store, which is lesser those brands, those partner brand businesses.
It is largely also focusing on tier 3 and tier 4 towns. That is bringing us a good response on low AST products, the products which are largely for the consumer segment, which is masses. That is giving us a good response. I really believe that should give us a good journey towards growth. That should also lead and bring in more consumer segment and more consumers which are mass-oriented and youth-oriented should come in.
In margin strategy in Unlimited, will it start mirroring V-Mart in a couple of years now given that incremental stores will start delivering the same numbers V-Mart does?
Currently, that's the calculation. It should work better. It should bring in good results. Not necessarily all the new stores have given us great numbers. There are 30% of the stores which are also putting us down in the new store list. There is some work which is happening around that as well. Yes, largely, on the list of stores that we have acquired, we have also filtered out some of those stores where those stores which were not performing have gone down or gone away or have been closed. The stores which have been performing are giving us, now have started also giving good growth. We should expect, but still, you should still have that delta of the margin as well as the sales per square foot compared to V-Mart, which is always there as a lag.
Sir, that's helpful. Thank you so much and all the best.
Thank you.
Thank you. The next question is from the line of Rahul Agarwal from Ikigai Asset. Please go ahead.
Hi, sir. Very good morning. Thank you for the opportunity. Sir, just a few clarifications on whatever so far we've discussed on the call. On these rental inflation, just to be very clear on this, let's say whatever new stores you sign up right now, and if we have to compare those square feet per month kind of rentals two years back, what are the inflation we are seeing for new stores? For the renewals, are the trends very different or they are similar? That's the first question.
I think we are signing up on almost similar average. There may be an additional, maybe around 5% delta from our existing normal rate of an existing store. Around between that, there is a range that we are trying to focus on. I think as a percentage also, we are targeting a similar percentage or even lower percentage because we believe the new store should be generating better revenue in the first year of operation. It drops in the second year of operation, but on average, it should come and have the similar averages.
New stores are 5% higher than existing, the renewals, is what you're saying?
Yeah, yeah. Suppose INR 45 is my average rental. The new store may be around INR 45. That's the average that we are seeing now.
Okay. That INR 45, you know, was two years back, what would be that number?
If I say five years, it has grown by almost INR 10. We were averaging around INR 36 at that period of time. After Unlimited, the average went up. This is definitely inching up every year by 5%-7%.
Got it, sir. Secondly, on the same-store sales growth, is the building up discussion around what you expect for the full year. Just mathematically, if I look at what you delivered last year, it looks like you have very high double-digit growth for the first nine months of last year. Now, going into this year, you have festivals supporting you, a bit of like 10 days, 15 days preponement. When I look at numbers, last year, second quarter, 16% for V-Mart value growth, 10% for third quarter, and fourth quarter, then it normalized to 7%. You can maintain on this base. You will be able to do look to high single-digit same-store sales growth on value basis for V-Mart. Is that correct?
[Foreign language] हाँ, मतलब आप मुझे question mark क्यों डाल रहे हो, यार? मतलब करने दो काम, पता लग जाएगा फिर तो। बाकी तो इधर है ना? क्यों मतलब इतना सवाल पूछोगे तो थोड़ी होगा, यार? कोशिश तो यही करनी है कि सीधा grow at, just grow at our pace, and we should do it. There is an opportunity in the market. There is definitely a passion opportunity which is there. There is a new water that customers trying to build. There are new set of consumers which are coming to the market. There is an opportunity. How much of the opportunity can we catch is all depending upon our actions and our resilience as well. Let's try and do it.
Got it. Fair point. One more clarification on the margins. I think what was discussed was that one few margins should not be extrapolated for the full year. What you're saying is a bit up per, you know, per unit, whatever piece you sell will be higher, but percentage-wise, maybe it will be, you know, similar or maybe a bit lower than one for the full year. Is that correct?
Yeah, I mean, that's how you should expect. That's what we are trying to build because we are not working on the percentage margin. We are trying to work on the rupee margin. Definitely, it will result into percentage margin once the same-store sales growth goes up because same-store sales growth, that is our last part of our cost, is fixed in nature. That definitely will result into the cash flow.
Perfect, Lalit. Thank you so much, and best wishes for the upcoming year.
Thank you.
Thank you. The next question is from the line of Varad Patil from NV Capital. Please go ahead.
Yes, thank you for the opportunity. I have three questions. The first one was, is it fair to assume that the reduction in advertising costs will be our major margin driver given we'll be maintaining a gross margin? Since the new store addition will also kind of prop up our advertising costs?
That is not the margin driver. Basically, the reason for the advertisement or the marketing cost reduction is not to increase the margins, but to increase the productivity. We are employing more efficient ways of marketing, thereby reducing the cost, which was, in our view, not as beneficial. There are multiple other margin drivers which are working more in our favor and which we would want to focus more on, like product improvement, sharper pricing, product display, supply chain efficiency, usage of technology. There are multiple other ways in which we are using multiple tools to improve our offering to the customer, thereby increasing our sales and margins.
Okay. Another one was on Unlimited. Do you see any further decrease in average selling price since you mentioned earlier in the call that Unlimited focus will also shift towards offering more value products?
We are not looking at any increase in the AST, especially in Unlimited. We are committed to provide more value offering. While there may be some seasonal variations because of festivals, etc., at an overall level, the AST should not increase in Unlimited. They should only come slightly more closer towards V-Mart in the longer run.
Okay. On your store expansion plans, are there any particular geographical clusters you will be focusing on for the?
Pan-India.
Because we don't?
Yeah, it's pan-India. We'll look at cluster-based expansion models. We look at all the states, all the cities, all the towns where we are already at present and try to open nearby.
there any specific states or geographies you are focusing on?
No, no.
Thank you.
Thank you. The next question is from the line of Rajiv Bharati from Nuvarama. Please go ahead.
Yeah, thanks for the opportunity. I mean, there is on slide nine this V-Mart Plus Unlimited advertising expense. How do we, let's say, on a thumb rule basis, allocate for modeling sake between the two formats?
There is no allocation. These are actual specific costs that we incur for each of the stores or regions in respective territories. There is no allocation per se for any of the expenditure in any of the lines.
No, because this V-Mart Plus Unlimited, we have given the combined ad expense, right? Is it possible to split that by format?
Oh, yeah, it is possible. I think I can share that number. It's not very normally, 80% business is V-Mart, and typically, the marketing strategy remains almost similar for both V-Mart as well as Unlimited. There are seasonal variations. For example, Unlimited had a preview sale for 10 days, 15 days in the month of June. They might have had a slightly higher expenditure, but overall, at an overall level, you can break the expenditure at an 80/20 ratio.
Sure. The gross margin, the variation between Unlimited and V-Mart on a YoY basis, let's say, how has the movement been between the two formats?
Gross margin in both the formats should have remained at a very similar time. Unlimited, [Foreign language] थोड़ा सा ज्यादा होता है। Unlimited usually has a slightly higher gross margin because we charge a 5% extra pricing in Unlimited for almost similar kind of products. That is because of the higher operating costs. At a V-Mart level, our gross margins this year would have been roughly around 34%, while for Unlimited, they would have been at around 39%, 40%.
The improvement on a YoY basis would be similar. You know why I'm asking this is because if you split that advertisement expense, right, we can reverse calculate the gross margin ourselves.
Lalitesh, you can have a separate discussion with Suresh. We don't disclose it separately as the gross margin in the IR presentation. I get your point, but what I'm just trying to tell you is that whatever strategy that we implement is for both the regions. Unlimited and V-Mart are not very different for us in terms of market penetration strategy and marketing strategies. The expenses typically move in tandem.
Lastly, on the full price comment, one of the peers has commented that June, especially, has seen a very high level of discounting from value retailers. Have we also seen that in our portfolio?
No, not that I'm aware of. We have not started any early discounting. We have always been an honest price value retailer, so we have not seen any high level of discounting.
Thanks a lot. All the best.
Thank you. We will take this as a last question. I now hand the conference over to the management for closing comments.
Yeah. Thank you so much for being there. We are all ganged up towards building HS Festival, and we are all working very tough, very intentionally to try and work with the drone team, with the store team, with the creative team, with the vendor base, and trying to get the products on time, try to meet the need, have the right supply chain, build for the customers' new expectations, and also have a differentiated brand proposition in terms of the presence in digital media. We are trying to bring in improvisation, what the newer age consumer segment wants and the Gen Z wants. That is what we are trying to drive. We all are focusing more on our work. Excuse us, sometimes a lot of your requests on conference and stuff are not being catered to.
We believe we should be able to deliver a good, healthy growth in the coming future. Thank you so much for being there and having the patience.
Thank you.
Thank you. On behalf V-Mart Retail, that concludes this conference.