Ladies and gentlemen, good day and welcome to the V-Mart Q3 FY 2026 earnings conference call hosted by Motilal Oswal Financial Services. 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 this conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Aditya Bansal. Thank you, and over to you, sir.
Thanks, Adit. Good morning, everyone. On behalf of Motilal Oswal Financial Services, I welcome you to V-Mart Q1 FY 2026 earnings call. From the management, we have Mr. Lalit Agarwal, Managing Director, and Mr. Anand Agarwal, CFO. Without further delay, I will now hand the call over to the management for their opening remarks. Over to you, Lalit.
Lalit, so please go ahead and please unmute your line in case if you're muted.
Hello, good morning, everyone, and thank you all for joining us today. Once again, we are doing a call for the best, one of the best quarters for the year that we generally have, which is always has been the best quarter for the industry and is generally the best quarter because of the Diwali and the winter months which have started, so let me start with a little bit of macro level. I think what we see, industrialization continues to deepen. Government policies are supportive. We see inflation largely in control. Per capita income or the consumption continues to rise. Not too much, but yes, there is a rise which is there. Reforms like GST has not really delivered a very immediate consumption benefit. But yes, there are clearly positive signs from a long-term formalization and efficiency standpoint as well.
There is definitely a renewed focus on manufacturing, which is constructive for employment, and definitely will bring up the income generation or income creation over the long run. At the same time, we believe that all these AI and the technologies which are coming in could begin to disrupt some traditional retail model or could begin to disrupt some industrial model or the employment which could create a little short-term noise, but also could enhance a lot of productivity, decision-making opportunities, both for retailers as well as other industries, so in the near term, what we see is consumer sentiment definitely has been influenced by some global development. Not exactly in our market, but yes, we keep hearing that in the urban cities and in the bigger towns and metros all these stagflation blues, geopolitical uncertainty. Definitely, there are weather-related disruptions also which are happening.
So these are some of the factors which are, I would say, which affect the sentiment, but not the fundamentals. We don't see a lot of deepening in the demand. We definitely see some rise there. Tier 2, Tier 3 market for us continues to show healthy returns or healthy growth. Rural or semi-urban markets, sentiment there has improved. That's definitely being helped by the agriculture produce, which is the outcomes which are coming in. Large shift which is happening from unorganized to organized, both in terms of formalization of economy and in terms of retail as well. Inflation definitely has been supported, has supported the consumption. Spending decisions definitely are more deliberate, we believe. So we see consumer sentiment, if I describe it, it is stable and cautiously positive. And I would not say too positive, but yes, cautiously positive. It is not exuberant. Definitely not fragile.
We are seeing consistent footfall growth across markets. Spending has increased, largely during occasions, festivals, weddings, events, family events, rather than a lot of impulse-driven consumption. Saving is definitely getting under pressure whenever we speak to consumers, whenever I go to the market, whenever I talk to some of the consumers. We see their saving rate has gone down. Consumption, definitely we don't see, has weakened, so this is largely getting driven also by younger consumers. They are definitely once again influencing the family purchase decision, especially in fashion and apparel. In our market, competition has also increased, definitely giving more choices to consumers. Importantly, this is increasing or expanding the awareness and the footfall for organized retail as a whole. That is the overall piece that we see in our markets. Because of consumption, because of more stores getting open, definitely more fascination is also coming.
I mean, a lot of these initiatives by the government right now have not led to a meaningful impact in demand patterns, whether it is GST or it is labor force and stuff. On the other side, we see good monsoons, higher [MSPs]. They definitely are putting more money in our farmers' hands or the supporting businesses which lease or help the farmer or trade with farmers. So there we are seeing some consumption potential. Weather definitely has been uneven for us in this Q3. We have seen excess rainfall or activity of cyclones during festivals in parts of Eastern India, in southern markets. So we have seen some disruption on the markets and some lower growth also coming in here. North and North markets in Northern India saw a delayed or a milder winter condition leading to depressed demand for heavy winters and all.
So festive demand overall was reasonable. Diwali, which was not a winter-led Diwali, yet the demand was good, was okay. It was not great, but the demand held up. Winter demand definitely got delayed a little bit. It was not lost. It didn't get lost, but yes, it was a little erratic. Some categories we actually sold off during initial times, and then inventory was an issue at times. But ultimately, we got a lot of these inventory. We definitely don't see any overstock. Once again, we are seeing some erratic festive, sorry, weather pattern in the month of January. Initial days were colder. Last one and a half weeks were a little lighter. But definitely, it is going to come back. Marriage calendar has also been very good in this particular quarter. And this has definitely supported some demand and post-festive demand.
So for us, for V-Mart, I think we are very clear and very deliberate. We operate in value retail where the pricing is aggressive by design. As a result, we do have lower margins than some of the peers. If you look at the national players, like Zudio or others, we do, or maybe the other stuff, we have some average or lower gross margin. But we definitely offset this through our tight cost control operations or inventory terms. And that is what we've been very strong in. That definitely creates a stronger first-floor profitability and a good payback on our new stores. Our advantage is definitely focus and discipline in our operation. We know our core customers, our core market intimately. And this is the strength of V-Mart is.
We definitely blend both our private labels, which is almost 70% now, and the market labels, which to suit the regional requirement or the local taste of the consumer, which we definitely do it through leveraging our deep vendor network. The partnership that we have with our vendors are like a vendor or a manufacturing partner. We definitely believe in this partnership and leverage this partnership to keep our cost competitive and our supply responsive. In the value segment, I think the, as it is growing rapidly, and we believe our format, the sourcing discipline that we have, and the execution easier, that definitely gives us a sustainable edge. I mean, equally, for us, it is also important to know that what we don't believe in, what we don't want to do, because we are not pursuing growth that dilutes our returns. We don't want to do that.
We are not using heavy discounting to mask our demand volatility, and we are not compromising our store economics for our headline expansion. We don't just want to go ahead and open up stores in every territory or anything that comes up to us, so I think the quarter has been good. The performance reflects this approach. Our quarter-specific numbers were influenced by festive timing, weather-related. The trajectory of the business remained intact. We maintained strict expense control. Operating costs definitely increased in line with planned expansion and normal inflation, but we did not see any uncontrolled cost which came in. As our volumes improved, this definitely translated into strong operating leverage. We held up our margins, underscoring the resilience of our model. Q3 definitely is not a flashy one-off or an aggressive markdown quarter.
It is definitely about solid execution, growing revenue with healthy margins, improving revenue quality, and protecting our cash generation. That was the key highlight of our quarter. Demand visibility definitely was uncertain, particularly in winter-led categories. We consciously chose to protect our margins, and I mean, we did not just go for one window. We wanted to also deliver in good times because winter is always erratic given the nature so there are some long-term decisions that we have taken. We definitely have our rigor in our disciplined execution. The new store openings that we do are very clearly and very carefully selected, and typically, they breakeven, as you all know, within our first or second month of operation. Our expansions have been completely funded by our internal accrual, keeping the balance sheet strong and virtually debt-free, so that's the key highlight.
Capital discipline is central to our model. We definitely want to build efficient stores, keeping our costs like CapEx in control, meaningfully lower than the industry averages. This definitely supports attractive store-level returns. On the technology and the process side, we definitely continue to upgrade our systems, our processes. The entire planning function, merchandising function, inventory management, these are increasingly becoming system-led, supported by tools, ERP, management, analytics. Some early AI use cases have also been deployed or trying to deploy a lot of those. We are definitely working a lot on refining our assortments, removing slow-moving SKUs from our systems faster, sharpening our focus on categories with consistent demand. We are decluttering some of those, trying to declutter a lot of those. Across merchandising supply chain operations, leadership alignment around efficiency, governance, and long-term value creation is definitely strong.
This quarter, we also saw our Unlimited business coming up very well. Some signs of improvement are visible there. Changes implemented in the last few quarters have definitely reflected some good benefits. While a few locations are still not performing well to their potential, the opportunity remains significant. We are definitely proceeding with creation and learning. LimeRoad for us continues to play as a clear only enablement platform. The focus is firmly on profitability here and back-end capability rather than scale for its just go on scale for the business or order plates. Our marketing expense has been sharply curtailed. All our online orders that we do from our stores and all are 100% prepaid orders. The technology backbone is definitely being leveraged to support the store fulfillment and our end-to-end capabilities. So we definitely, looking ahead, we remain cautiously optimistic and firmly long-term in our outlook.
Demands definitely should continue to evolve gradually, supported by stable inflation, improving rural incomes, and the ongoing shift towards more organized retail. Definitely, our input costs are getting eased, which do provide margin support. But yes, we are very vigilant on any of these reversals or any one-time expense rise. So we are very vigilant on all of those. We definitely want to grow, building capability and resources, but not increase expenses to a larger extent. Every investment that we do is evaluated through a multi-year return lens. We just don't work for one or two years of our sales. We are building for scale and sustainability, definitely not short-term spikes. So that is the key thing because we keep hearing a lot of analysts asking us questions. So we need to be very, very clear on this.
We definitely are confident in the operations from our fundamentals because we have grown across markets, not in selected pockets. If you look at our growth pattern or our new store opening pattern also, our strong performance is there from all the new stores that we have opened up this year. We have seen a good visible improvement in our Unlimited market, the South India market. We have seen positive consumer response wherever our sharper product or sharper design that we have launched or wherever that we have done a good job. Margin definitely has been improved by efficiency, not by price distortion or increasing the prices. We definitely have a very strong vendor ecosystem and a very, very strong governance framework. And beyond all, I think we are riding on the idea of long-term consumption store. So these are the highlights.
I definitely believe we are there on the call. I'll hand over to Anand to take you through the numbers, and then I'll answer your questions. Thank you.
Thank you, Lalit. Good morning, everybody. Let me take you through some of the key highlights from this quarter, and then we can open the session for questions. As Lalit highlighted, it's been a quarter of mixed signals, but ultimately a strong financial delivery. While we faced headwinds with the delay in winter onset in the north and also continued political disturbances in the east, our focus on operational efficiencies and the strong performance from South markets helped us deliver a robust bottom-line performance. I think Lalit spoke a lot about the monsoon and the weather, so I'll skip that part.
But despite a good monsoon and forecast of a good strong early winter, weather still played spoilsport, with peak winters getting delayed in entire North and West India, leading to a lull post-Diwali. Actually, overall, temperatures have generally been hotter throughout the year, reflecting the increasing impact of climate change, which was also reflective in the lower peak winter days in this quarter. We had actually, in fact, planned for a summer Diwali this year, assuming the delay in winters like previous year. However, we had not actually anticipated such a severe delay and complete lack of winters almost till 20th of December in almost entire North India. Even actually states like Rajasthan, Gujarat, MP, they were actually the most severely impacted even till end of December.
Irrespective, I think, as Lalit mentioned, efficient planning and good management on inventory did not lead to any adverse impact on inventory at all. In fact, there was a time when we were actually short on inventory for some particular areas. So at an overall level, while the festive period went off reasonably well, the winter demand did not pan out as anticipated, but we continued to execute well on our expansion strategy, adding 23 new stores during the quarter, taking the total store count to 554 stores. New stores actually are ramping up much faster and better than historical averages, delivering better than network throughput, which reinforces confidence in both site selection discipline as well as the brand relevance across tier two and tier three markets, and this goes equally well for the South India territory, where we have also started to expand more.
Although the expansion in south in this quarter seems a little low, the plans for south remain intact. Coming to margins, gross margins for the quarter remained stable year on year, despite a 40% decline in LimeRoad commission income, which flows directly or entirely into the gross margin, but now forms a very small share of the overall revenue. Importantly, excluding LimeRoad also, gross margins in the offline business actually expanded by 70 bps year on year, which was largely driven by better inventory health, leading to better efficiency, which also necessitated lesser discounting intensity, and also a change in improved product mix coming out of the marriage season, etc. The ongoing strategic initiatives led to improved inventory health and a better gross margin.
And for the full year also, we expect the offline gross margins to remain broadly stable versus last year, as our value proposition continues to focus on volume-led growth. Coming to expenses, the total expenses for the quarter only increased by 1%, which actually led to a good operating leverage on the bottom line. This was largely led by robust cost controls in all cost lines, including manpower, also LimeRoad expenses, and also lower marketing spends as we continue to drive loyalty-based traffic to stores through digital interventions. Our NPS and Google ratings remain at all-time high, and they give a source of confidence also for us to keep expanding more. The reductions in LimeRoad cost were strategic and sustainable, as we have been focusing on breaking even this segment at the earliest.
The business has already been profitable at CM3 level since the last one and a half years, and we continue to improve further and build on that. On the Labour Code impact, we recognize an exceptional cost of INR 2 crore-INR 2.1 crore arising out of the changes proposed, while the rules are yet to be announced, but based on whatever information and the guidance available was there, we have taken a one-time hit as prescribed by law. As a net result of the sustained operational efficiencies, our P re-Ind AS EBITDA improved from 10.8% in last year to 12.2% this year, and the reported, which is the Post-Ind AS EBITDA, grew 22% year on year to INR 210 crore, with margins expanding by 190 bps to 18.6%, reflecting better cost absorption and productivity gains. The EBITDA growth translated into a 23% year-on-year increase in Q3 PAT to INR 88 crore.
On a full-year basis, or rather on a YTD basis, PAT has now grown almost 3x to INR 113 crores, reflecting consistency rather than quarter-specific efforts. Coming to inventory, our days of inventory increased marginally by 1% to 95 days. This slight increase is largely due to the slight change in the FMCG inventory, as we strategically increased space for apparel offtake during winter. But this is a larger initiative where we are trying to become more focused on fashion than just FMCG. Irrespective, the FMCG and the winter inventory remains under control and healthy. In fact, the freshness of inventory has improved year on year due to aggressive liquidation of old stocks in the earlier quarters, leading to, in fact, lower provisioning. Capex for the quarter stood at INR 57 crores, primarily towards new store additions and selected refurbishments.
On a YTD basis, the business generated positive free cash flow of INR 63 crores, which was also 9.4% up year on year. Going forward, we continue to remain bullish on the market opportunity in all geographies and aspire to increase our footprint in a disciplined, profitable, and sustainable trajectory. As communicated in last quarter's call, we are looking to end the year with 75+ new store additions this year. So that is all from my side, and I request the moderator to open the house for questions now. Thank you.
Thank you. We will now begin with the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Sucrit Patil from Eyesight Fintrade. Please go ahead.
Good morning, team. I have two questions. My first question is, with festive-led recovery driving 21% revenue growth this quarter, how do you see discretionary demand in Tier 2, Tier 3 cities evolving over the next one to two years? And what specific initiatives like private label expansion or omnichannel integration will be used to sustain double-digit growth beyond FY 2026? That's my first question. I'll ask the second question after this. Thank you.
I'm not quite clear about your question, but anyway, I think largely we all know that for our market, it is largely led by festives and seasonality.
This particular quarter, we would see both big festivals coming in, Holi as well as Eid, which is both lying in this particular quarter. There is going to be a good February and March that we are expecting. So this will definitely go up. We definitely have a lot of initiatives in terms of ranging our summer collection. We launched our summer collection in some part of the geography of India. We have seen good Pongal festival also coming in this year, this month. So Pongal has been good in this market. As today we are speaking, this is a Basant Panchami day in the eastern part of India. They call it Saraswati Puja. So there are also a lot of festive-led demand and regional festivals, which is there in different parts of the geography. And that is what one which we're going to need.
Then definitely our own designs, our assortments, our products, whether it is created by our own design team through our private labels or private labels through our vendors or exclusive labels that we have out of our vendors, we all definitely are going to lead into the demand and will definitely keep the growth momentum up.
My second question is to margin and capital efficiency. EBITDA margins have improved to 11.7% despite cost pressures. Looking ahead, what levers such as store rationalization, inventory efficiency, or digital scale contribution do you expect to drive margin expansion in the next two to three quarters? And how will this translate into improved ROC and debt reduction in the target? Thank you.
Sorry, we will try to answer you earlier. But anyway, I think definitely the organization is working towards increasing both the return on capital employed as well as the margins.
We definitely believe that every expansion or increase in revenue will bring in some benefit into our cost, our expenses, our percentage of sales. So we will definitely deliver a better margin even going forward. That's the thought process, and that is what we are all here working and planning for. So we definitely believe a lot of digital initiative, as I mentioned, a lot of efficiency generation in our process, or even upskilling the people. These all should be the leading guidance or guide to increasing the sales as well as creating efficiency, not reducing the cost because we don't have too much of area to reduce our cost. We definitely want to become more efficient and more scalable simultaneously so that we are able to deliver better returns both for the equity or for the capital employed.
Thank you for the guidance, and I wish the team best of luck for the next quarter.
Thank you. The next question comes from the line of Hitaindra Pradhan from Maximal Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. So my first question is, in the gross margin, can we improve this quarter? So what was the mix of your winter assortment versus festive this quarter?
Winter assortment versus festive?
Yeah.
Sure. Our winter normally in these quarters are upwards of 40% mix, the winter, pre-winter, wintery category. If you go towards December, the peak winter season, it goes up to 62%-63% also. But on overall level, including the festive month, it was around 40%-45%. Balance definitely is something which is not purely festive, but largely Indians wear the basic products and autumn products also during festive. That is what contributes to almost 55%-58%.
And those usually go like full price throughput and contribute to your gross margin, or is there something else that contributed to your gross margin uptick this quarter?
The gross margin uptick is largely because of higher full price sales because we generally don't discount during this quarter, and we have not done any discounting in this quarter. That is definitely because of better margin and then better margin sales of the products. This is also led due to, I think, maybe Anand can give you a little more insight into the whole shrinkage management or the provision for the shrinkage.
Yeah. You are absolutely right. One is obviously the, as I mentioned in my opening remarks as well, the overall health of the inventory is very good, which actually did not require any significant amount of discounting.
So in any case, quarter three has always been a very good profitable quarter for us, where we always try to drive the maximum full price sales through. And this quarter exceptionally has been slightly better with respect to that. And also, I think there's a lot of work that we have done around reducing our shrinkages and therefore the provision that we usually do around old age inventory and the shrinkages. That has also come down this quarter. So that's already there in our investor presentation as well. But yes, all of these have contributed to the improved margin this quarter. And because the inventory health remains very good, I think we should be able to look at healthy, stable margins going forward as well.
Okay. Okay. So, the second question is related to the long term, like you, sir, have made comment about the value proposition investing in tech for your value retail and the growth. But if we look at the numbers beyond after FY 2022, FY 2023, there has been a decline in terms of your SS SG for the markets where you are already stores have matured and all, and they are not even doing above nominal GDP level growth. And this year, I mean, it is below probably full take last two, three quarters trailing, or that trend is going down. So how do you see the SS SG or store level growth fanning out in the next couple of years? And do you think that Tier 3, Tier 4, these places where you have already stores, they can grow more than nominal GDP level growth?
So, I don't know what is your intention, what are you trying to intend, but we definitely believe that we are doing as a company. We are performing better. Last year also, we gave a great performance. This year also, our performance on the same store sales growth has been good. Definitely this quarter because the Pujo month, Pujo festival was in the last quarter. So you are not seeing a high or a flat or just a flat-ish same store sales growth. But if I normalize, we would see a stable 5%-6% same store sales growth which is coming in. See, the same store sales growth is a function of all our doing. It is not about the market.
It is more about what are we delivering, how much is the market getting occupied by more competition, and how many more organized players are walking down into that particular town or city where we are operating. So I think the company and your management is fully into it to try and bring in initiatives, to try and definitely bring in the creativity and have very clear processes and great commitment so as to deliver those kinds of growth. And we believe there is opportunity in the market. We believe that there is more fashionism coming in. Definitely, it has not been a lot of per capita income growth for our consumer segment. So that consumer segment is still struggling somewhere.
We believe their incomes are going to rise, and it will definitely lead into more same store sales growth because whatever resilience that we have demonstrated in spite of so much of competition coming in, that definitely brings in a very clear, strong confidence on our fundamentals, and we will definitely keep continuously delivering same store sales growth beyond the GDP growth.
Okay, sir. Okay. Thank you, sir, and all the best.
Thank you. We take the next question from Kaivalya Baing from IIFL Capital. Please go ahead.
Hi, sir. Good morning. Am I audible ?
Yes.
Sir, so my first question is regarding the revenue growth. So if we look at 2024 and 2025 as well, we were generally clocking in a mid-teens growth in revenue, but a slight slowdown this quarter. Could you just elaborate on what would be the factors or what was different compared to last year that there has been a slight moderation? And in addition to that, a question is, could you just also tell me which states have been facing a slowdown, if any?
So I think I have already explained that compared to last year's same quarter, last year, the Pujo festival, which is celebrated largely in Eastern and Southern parts of India, that was largely in October. And the sales were also a lot of sales came into the month of October, which is the Q3. This year, the Indian festival calendar moves by the lunar calendar. So that got moved into September. So there is a lot of shift of sales which has happened.
That is why you're not able to see the similar growth pattern, which is your clean growth that you wanted, 15%, 17% growth. And that is the actual growth which is coming. So you will see a little higher growth maybe in this coming quarter. So the quarter on quarter, you will see these things happening. But overall, we believe the fundamentals are great, and we will continue going. If I adjust even the festive shift from Q2 to Q3, our revenue growth will fall into around 15%.
Understood. Understood. And second question, sir, regarding the margin expansion this quarter. So considering the 9% growth, most of your margin expansion should be coming from efficiencies. Correct me if I'm wrong. And not just because of leverage. So what could be the exact efficiencies that you are referring? I understand marketing spend must have been rationalized to a certain extent. But apart from that, could you just tell me what efficiencies are being realized?
I think, see, efficiency in terms of what are my costs? My costs are largely rentals. My costs are employee costs. My employee costs are operational costs. My costs are logistic costs, warehousing costs. My costs are marketing costs. So I think efficiency across the area, which is controllable. Rentals, I cannot reduce. There is a growth. There is a predefined growth rate which is disciplining in the rentals. So you can't bring in an efficiency there. You can definitely increase your sales per square foot by bringing down the rentals cost as a percentage of sales. And other than that, you have areas of efficiency which you have driven. And as an organization, we have driven. The entire team has come together. And there is a lot to do here.
But yes, we are trying to drive more sales out of the same number of people or less number of people. We are trying to drive more sales by reducing some processes, by integrating technology, by bringing in some additional new ways of marketing, new digital ways of marketing, or creating a store which is consumer-led marketing, which is the key, which generates the maximum impact. So we have been very, very good in terms of focusing on our Google ratings, focusing on our NPS score for customers. So we have been really working hard to give the customer those kinds of experiences and those kinds of pleasant shopping joy so that they come back again and again. And it is just not trying to drive cost reduction. It's trying to be efficient both qualitatively as well as quantitatively.
Just to follow up on this, sir, do you see more ample opportunities in the same levers for further margin expansion, or would you have to rely on leverage going forward?
Same levers or leverage? I'm not sure. Anand, maybe you can help.
I think, see, on a sustainable basis, it will always be difficult to keep reducing cost beyond a certain level. I think, as Lalit had already mentioned, we are already very, very fine-tuned on cost. So even the cost reductions that we are able to see are actually coming in from more leverage. Right now, it is not sales leverage as much as would have been possible. But in future, what I foresee is that we should be able to get more margin advantage only out of leverage, more out of leverage than cost optimizations. Cost optimizations, we are already amongst the best as far as the P&L is concerned.
Thank you, sir. This is very helpful. I will come back in the queue for further questions. Wishing you and your team the best of luck for future.
Thank you. The next question comes from the line of Devanshu Bansal from Emkay Global Financial Services. Please go ahead. Devanshu, please go ahead and kindly unmute your line in case if you're on mute.
Yes, yes. Sorry, apologies. Good morning. First question is the volume growth for Unlimited is pretty healthy at about 10% in nine months versus about 1% for V-Mart. When we see the sales per square foot, there is still room for Unlimited to continue growing faster. The sales per square foot is about 16-17% lower. So question is, now that we're seeing better trends, can we sort of expect Unlimited to continue delivering better SSG trends for us over the next few years? So better clarity would help.
Yeah. Devanshu, I think what you are asking is also what we are trying to deliver. And consistently, if you look at the last two years, we have been delivering better numbers on Unlimited. So Unlimited, we have actually, if we were to look at the breakup of Unlimited, we have some legacy stores, and we have also almost like 50+ stores now that we have opened, 45+ stores that we have opened in Unlimited post-acquisition. So all the new stores that we have been opening in Unlimited, most of them have been delivering much better sales per square feet and much better profitability in line with the established V-Mart model.
And as the average of these new stores starts to take over the average of the legacy stores, we will see improved sales per square foot numbers also for the complete Unlimited chain. Having said that, I must also mention that the legacy stores that we have in Unlimited, they are not unprofitable. They are just slightly bigger in size, bigger in area, and have had an established clientele which works on a certain principle of what they want to buy, when they want to buy, etc. But the newer stores, they are definitely more in Tier 2 , Tier 3 towns, delivering much healthier numbers. And we continue to put our faith in expanding the Unlimited business and increasing the sales per square foot to bring it in line with V-Mart numbers in the next two to three years.
Thanks for this explanation, Anand. So just from a steady-state perspective, because we have been in this region for quite some time now, do you believe that the sales per square foot for Unlimited can even be higher than V-Mart or at best can be similar to V-Mart? So any color there?
So as of now, our first priority is to get this to at par with V-Mart at an entire Unlimited network level. So for the newer stores, as I mentioned, they are already almost at par or better than even V-Mart stores. But for the complete Unlimited brand or network, the first priority is to get that to the V-Mart average, and then we will look at how we can increase it further. Obviously, there is headroom, and there is opportunity to improve it even further.
Fair enough. Second question is to understand the model, I guess, factor in slightly higher gross margins for Unlimited to sort of compensate for the higher rentals. Assuming we reach a similar to V-Mart throughput over time, as you indicated over the next two, three years, can the model deliver similar to V-Mart EBITDA margin also at that throughput level, or there are some structural reasons because of which EBITDA margins may remain lower?
No, absolutely. We have always been very, very profitability-focused, and our priority is always to make sure that the EBITDA margins are first achieved rather than just the top-line numbers. We have never, ever chased top-line just to get a headline growth. Our priority always is to get the EBITDA margins first. Therefore, while you ask for sales per square foot or the overall productivity numbers, but we look at the Unlimited performance more from the profitability perspective. Our objective is to get the profitability in line with V-Mart as soon as possible.
Understood. Lastly, if I can squeeze in, for nine months, our SSG has been positive, right? But rent has increased about 20-30 basis points. Is this increase broad-based across both V-Mart and Unlimited stores, or there are some specific regions which are seeing higher rentals?
No, this is a normal curve. There is nothing extraordinary to read into this. This is absolutely normal. We remain very, very cost-conscious in terms of choosing new sites and ensuring that our cost or rental per square foot remains at a certain level. The SSG, while at an overall full-year basis, is around 3%. But as we grow this SSSG, you will see the percentage coming down on the rental as well. You should actually always look at the per square feet rental, and that should give you a good color on how that line is actually moving. In fact, for all the cost lines, the percentages will always vary depending on the performance and the operating leverage that you get in any one quarter. So it's always better to look at the cost lines on a per square feet basis.
Fair enough. So as a benchmark, for V-Mart, our monthly rental per square feet would still be around INR 45, right? And for Unlimited, it should be closer to INR 65-INR 70. Is that fairly a good understanding?
No. V-Mart should be closer to around INR 48-INR 49. And for Unlimited, that would be at around INR 65. INR 65.
Fair enough. Thanks for taking my questions. Let's sit down.
Thank you. We take the next question from Smith Gala from RSPN Ventures. Please go ahead.
Yeah. Thank you for the opportunity. First question from my side would be, in the longer term, for next two or three years, what is the square feet we are looking to add, and what is the SSSG which we are targeting, which we are around 3% or 4% for nine months till now? And what will be the bridge to get to that SSSG which we are looking at?
So the square footage addition on an annual basis should be at around 13%-14%. That is what we have targeted. And that is a long-term target that we have taken. It's not just for one year or this year or the next year. I think in the medium- to long-term, we are building up 13%-14% area addition every year. The SSG aspirations always need to be mid to high-single-digit, 5%-8%. So that's the aspiration. Obviously, there will be quarterly disturbances. There will be anomalies and opportunities that we will keep encountering as we move along. But as a mid to long-term average, I think 5%-7%, 5%-8% is something that we are definitely trying to deliver.
Okay. The 13 sq ft-14 sq ft addition which we are looking over the long term, so is there enough headroom in our current markets, or will we be looking to enter some sort of new markets going forward in the same country?
See, the markets are large enough, and we have almost reached all the states of India. Within those states, definitely, we will penetrate. There will be maybe 30% of the expansion, 35% of the expansion in the same town and city where we are present. But still, 60%-65% of the expansion will come from maybe different towns in the similar states where we are present. We definitely believe in still believing that cluster philosophy. We want to penetrate more into our existing network of India where we are already there. And there is a lot of room, and there is a lot of potential that we are able to see in all of these markets.
Okay. Thank you. I'll join back to you.
Thank you. The next question comes from the line of Anshul Agrawal from Nuvama Wealth Management. Please go ahead.
Hello. Good morning, sir. I'm Rajiv here. Sir, one question on cost of retailing. This is barring the employee cost line item and the rent. And the overall cost of retailing has become INR 181 per sq ft per month Pre-Ind AS basis. So this INR 7 reduction on other expenses, was there a cost which you are carrying for several quarters? Because we are now getting into pre-COVID levels of cost of retailing. Just want to get, was there a one-off in the past few quarters which is shaved now?
If I'm able to understand your question, what you're asking me is, is there any seasonal aberration in this quarter because of this cost coming out low? Is that your question?
No, sir. So your cost of retailing, historically, pre-COVID used to be, let's say, in Q3, close to INR 180. And after that, for the last several years, it was nudging towards INR 200. I was wondering whether from COVID till today, till previous quarter, was there an external cost you were carrying which is not there? For example, some consultant you hire, which is not those fees are not there in this quarter, and that's the leverage which we are seeing now.
So while we did hire a consultant, that is right, but it is not such a significant cost, and that happened over a period of over two financial years. So it was not a very high significant cost. I think what you need to segregate is the LimeRoad cost because that is an extra addition which happened in 2022.
Because of which the overall cost in the P&L sort of looked inflated for almost three years. It's only since last year that we've started to correct that and reduce that cost base, which has now started to come into the P&L. So you need to break down the P&L while we present LimeRoad numbers as segment numbers also. So if you were to isolate that and look at the offline P&L separately, you should be able to see there is no further aberration.
Sir, actually, this INR 181 and INR 194, let's say INR 194 was the last year's number. I have removed LimeRoad impact from the cost line item also. So this INR 13 drop partly explains from employee and rent partly, but there is INR 7 still coming from other expense line item, which I'm just wondering how sticky is this. Is this a new cost structure which we will maintain here onwards?
See, Rajiv, there are some inflationary items. There are some inflation also. And then there are some costs which you cannot segregate in a particular department. Even maybe there are logistic costs or there are expenses which are related to other operations. Not necessarily what you are trying to say, [Foreign language] . I think there is a cost which is going to be there. It will always be bucketed like that. But yes, the cost as a number will not go down. There is no extraordinary cost which is getting post-COVID. So these are either segregation or some change in the accounting processes. That is how you are seeing it.
Sure. That's all from my side. So thanks a lot. All the best.
Thank you. Ladies and gentlemen, we take that as the last question for today. I would now like to hand the conference over to Mr. Lalit Agarwal for the closing remarks.
Yeah. Thank you so much. Thank you, everyone, for being there and being in this call and being with us in all of these difficult times. But let me underscore that this performance and our strategy are not happenstance. They definitely reflect a seasoned promoter's mindset, steady growth, capital discipline, and a strong balance sheet. So we will definitely continue on all of those areas, not bringing shorter spikes. And I really thank everyone for their attention. Thank you so much. Have a good day.
Thank you.
Thank you, sir.
Thank you, sir. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.