Ladies and gentlemen, good day and welcome to the Vishal Mega Mart Ltd Q1 FY 2026 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions, and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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. Rahul Agarwal from Strategic Growth Advisors. Thank you, and over to you .
Yeah, hi. Good afternoon, everyone. Thank you for joining us on Vishal Mega Mart Ltd Q1 FY 2026 Earnings Conference Call. We have with us Mr. Gunender Kapur, MD and CEO, and Mr. Amit Gupta, CFO. I hope everyone got an opportunity to go through our financial results and investor presentation uploaded on the company's website and stock exchanges. We will begin the call with opening remarks from management, following which we will have the quorum open for question and answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Gunender Kapur, MD and CEO, to give his opening remarks. Thank you, and over to you, sir.
Okay. Thank you very much, Rahul. Very good afternoon, ladies and gentlemen, and welcome to the Vishal Mega Mart Earnings Call. I will very briefly take you through the key highlights for quarter one 2026, and then we will maximize the time for Q&A. Our business grew by 21% in the quarter. This was based on a same-store sales growth adjusted of 11.4%, and of course, new store opens, which were in an absolute sense 23 number. The gross margin of the business improved from 28.2% to 28.4% in Q1 2026. The EBITDA margin improved from 14.1% to 14.6%. On an adjusted basis, which is pre-ECOB charges and pre-Ind AS 116, it improved from 9.3% to 10.3%. Our PAT improved from 5.8% to 6.6%, and our PAT adjusted from ECOB charges improved from 6% to 6.9% this year. I'm sure all these numbers are with you.
In this quarter, we've opened, as I mentioned, 23 new stores, and we've also opened in the quarter one store in Maharashtra and Gujarat as a pilot. I have spoken briefly about this in the last earnings call. As of Q1, we now have 717 stores. We are present in 472 cities. We've added 16 cities in this quarter, with a total trading area that is 12.4 million sq ft . The contribution of our private brands continues to improve. In the current quarter, in Q1 2026, that is, it is 75.8%, which is 170 basis points improvement YoY . Our quick commerce business has expanded now to 670 stores across 445 cities in the country, and the number of consumers and customers who are registered on quick commerce has increased to 10 million people.
With these very brief comments on the quarter results, I will now open the floor for questions. Thank you.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press STAR and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press STAR and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have our first question from the line of Vivek from Jefferies. Please go ahead.
Hi, GK. Hi, Amit. A few questions, please. First, before I ask you about your business, GK, can you just talk about what trends you are seeing on the ground, briefly about the consumer sentiments, whatever you're picking up?
Hi. Good afternoon, Vivek. I can share a very personal perspective. I think the expectation continues that the consumer demand will improve after the changes which were announced on income tax. That expectation continues. While we do not quite operate in the rural areas, as you know, all our stores are in the urban centers, I have heard in the marketplace that there is some uptick in the rural demand. Expectations are that the consumer demand will improve on the back of more money in the hands of consumers. Market sources say that there is some uptick in the rural demand. That's what I've heard, Vivek.
Got it. The second question, GK, last quarter, you had mentioned that, you know, operating leverage benefits, whatever that you derive, this will be plowed back into growth. This quarter, of course, it's a welcome thing that margin has moved up. How do you think about, from a four-year perspective or a medium-term perspective on the, let's say, pre-index margins? I think that's more relevant after the rental cost.
Vivek, if I recall correctly, and I may be wrong, we have said that the gross margins will remain flat. As you would notice in the quarterly results, the gross margins have improved, but slightly, from 28.2% to 28.4%. As a combination of this and the operating leverage, the EBITDA margin has improved from 14.1% to 14.6%. I would just, Vivek, for the sake of clarity, repeat that we will keep our gross margins constant. Any improvement in the gross margin would be significantly invested back in growth and improving quality of the business. Our EBITDA margin will continue to improve, basically at the back of operating leverage.
Okay. Got it. My bad, if my understanding was incorrect. Lastly, GK, if we look at some of the retailers in India, a decade back or 20 years back, they started with a journey where own labels started at a smaller proportion. Ultimately, in at least fashion sales, it has become 100% of their overall retail sales today. Where do you think your own labels will settle at in the next five, 10 years?
Firstly, we think in the clothing business, 100% of our business is a private brand now.
Got it.
Clothing specifically, yeah, it will stay at 100%. The improvement will largely happen in general merchandise and FMCG. The increase that we are seeing in the overall contribution of private brands in this quarter is mostly in FMCG and general merchandise. That trend will continue, but it may not grow at the same pace as we've grown historically in terms of percentage because, quite obviously, the easier and the larger opportunities have already been exploited. Apparel will stay at 100%. GM and FMCG will continue to improve over the years. That is where we are at the moment right now.
Okay, just one follow-up.
We'll request you to rejoin the queue, please. There are four participants waiting for their turn.
Sure. Thank you.
Thanks.
Thank you.
We have our next question from the line of Percy Pentaky from IIFL Securities. Please go ahead.
Hi, team. Good morning. Congrats on a very good set of numbers. My question is on the margins. This quarter, pre-index, basically, you have almost touched 10%. Just wanted to know your normal seasonality. In a normal year, is Q1 higher than or lower than the full-year margin?
I'll tell you in slight detail as to how it pales out. Our quarter one is typically good. Our quarter three, which is the festive quarter, is the best. Relative to these two quarters, quarter two and quarter four, which see end-of-season sale, and we have events like Shrad, which is, for example, this year in September. Quarter two and quarter four are relatively muted. Quarter one and quarter three are very good. Between the two, quarter three is higher.
Understood. Very clear. Just wanted to understand on margins, how you look. You did reply to Vivek, but just confirming that as long as you get operating leverage, you would be okay to let margins expand. There's no limit to that number. You are not capping it, saying that even the operating leverage will be reinvested at some point of time.
No, we are not saying that at all. I must say that the improvement on the EBITDA margin at the back of operating leverage will be in the same ballpark as they've been in the past, which is 0.2, 0.1, 0.3. It's a similar ballpark.
Got it. Understood. That's all from me. I'll come back in with you because there are a lot of people. Thank you.
Thank you.
Thank you. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead.
Hi, GK and Amit. Thanks for the opportunity. I just wanted to double-click on SSG. At 10.5%, it has clearly outperformed most of the other retailers in this quarter, despite some of the festivities moving in Q4 of last year. At a very broad level, we understand that you move with your business. What is driving this sense of outperformance versus sales? I heard you talking about improving demand environment. Does it give you a confidence that in sustaining this double-digit kind of SSG momentum for the rest of the year? If you could give incremental flavor also on how much of this is transaction-led versus, say, mix-led? That's the first question.
Hi, Latika. I just need to confirm the first thing that you said. Our performance this quarter was, indeed, to a very small extent, impacted by the fact that Ugadi and EID festivals, which were in April last year, this year, they were in March. That is absolutely correct. What was the second?
The growth driven by the transactions.
Yeah. Latika, our growth in quarter one was largely driven by transactions, with a smaller contribution coming from people buying more items and people upgrading to higher price points. The largest contributor to the growth was the improvement in the number of transactions.
Understood. The other part of the question was your confidence levels in sustaining this kind of momentum of double-digit SSG. Since some of your peer groups have clearly not delivered this kind of number, I'm just trying to understand. Clearly, execution momentum would be for numbers at these levels.
Latika, I can summarize my feeling by saying that our endeavor every quarter would be to ensure that we are consistent with our past performance. If you recall, we have said that earlier also. I can reconfirm that statement that our endeavor, our effort would be absolutely, in a very disciplined manner, directed towards ensuring that our performance is consistent with our past performance.
Understood. Second piece, just on margin side, any incremental thoughts on what are you sensing on labor inflation and rental inflation in general? How should one think about that?
As you know, the rental inflation will happen as per the lease contracts that we sign with the landlords. That is typically 5% per annual. The rent inflation will also happen in the ballpark of 5% - 7%. It is a bit dependent on when the state elections happen, etc., because that's the times the minimum wages go up. Then they go up by more than 5% - 7%, which I just mentioned. That's typically the kind of wage inflation that we've experienced, and our expectation will be that it will be in a similar ballpark. Beyond that, as you know, commodity prices are more stable at the moment. It is very difficult to predict on commodity prices how they'll pan out given the global context. We are just very vigilant and watching how those prices pan out.
Understood. Thank you so much.
Thank you.
Thank you. We have our next question from the line of Nihal Mahesh from HSBC. Please go ahead.
Yes, we do need two questions.
First, if you're interested, Mr. Nihal, can you please be a little louder?
Yes, it was better.
Yeah, please go ahead.
Two questions. First thing, we did mention obviously about the benefit of operating leverage. Just to clarify, how the other expenses of the store are pretty similar to top line despite 10% SSG? What has driven this kind of a high increase in the OpEx for us just to understand better?
Our total expenses have gone up, basically, as I mentioned, on account of the contracted rentals going up, on account of wage inflation, on account of our marketing expenditures. Yeah, those are the key elements which have contributed to our increase in expenses. There is really nothing else beyond.
Understood. GK, the second question was on the private leverage there. I think last quarter, you did mention that at least in the FMCG business, around 50% of the volumes and around 45% of value happens via the private label business. Just to understand that from here, just like in apparel, is there an aspiration to take this number to 75%, 80%? You just mentioned right now on the call that maybe the low-hanging fruits have been taken. Is the aspiration to keep inching this up, or is the number staying at the current level also something that you were fine with?
No, our endeavor, again, would be to ensure that this number keeps inching up. I did mention that the pace of increase as a percent would probably be lower than when we started with the private brand agenda. Yes, I can confirm that the number will keep improving, both in general merchandise and FMCGs.
Just one follow-up here that incrementally, the incremental more about certain categories having an adoption or from a supply chain perspective of maybe getting our offerings in place to be equally good or better than, say, what branded competitors are offering.
It will be on two shelves. One is, of course, the smaller the category, the more challenging it becomes to create a supply chain for a private brand because the volumes are very low. That, of course, is one challenge. As you would know, the larger categories have largely been done. What is left is the smaller categories. The second factor would be that categories which are highly emotional in nature and where the emotional content of the benefit of that category or brand is very high, our adoption would be somewhat slower because we don't advertise in mass media or individual private brands. Quite obviously, where the emotional content of the brand is very, very high, and you can think of many examples of that in FMCG, there, of course, our adoption and our expectation would be somewhat slower.
Both the factors, the supply chain for smaller categories because of very low volumes would be somewhat more challenging and expensive. Also, the brands where, for example, soft drinks and things of that sort, the relevance and adoption of a private brand could be somewhat lower.
That's very clear. Thank you so much .
Thank you. We have our next question from the line of Gaurav Juvani from JM Finance. Please go ahead.
Thank you for taking my question. I have only one question with regards to the competitive intensity. We've seen there is a lot of expansion by players in not only the apparel space, but even the largest grocery players also kind of expanding in South India. How do you see the competitive intensity impacting your overall cost, even in terms of rent? There will be more demand for the space, more demand for labels. Incremental addition, does this impact on the cost and expenses in the labels?
Okay. Quite honestly, competitive intensity at this level, what we are experiencing at the moment, has been a feature of our industry for the last three or four years, actually, after COVID. It has never really gone down in a significant way as far as expansion is concerned by all the other organized sector players. That continues. You're absolutely right there. Our approach in this situation is to be very disciplined about our execution. By that, what we mean is that we get properties in the right locations and do not take a large risk there. We get properties with the right level of rentals and do not take a huge risk there. We execute brilliantly in terms of opening new stores and running new stores because our goal remains the same, which is to open successful new stores.
I can say that the competitive intensity has been at this level for quite some time.
Okay, thank you, sir.
Thank you. We have our next question from the line of Tejash Shah from Avendus Spark . Please go ahead.
Hi. Thanks for the opportunity and congrats on a very good set of numbers. GK, you briefly mentioned on consumer sentiment, and our FMCG seems to be doing far better than what the broader consumer sentiment seems to be. Just two dimensions there. Has the fit form improved for us, or the conversion rate has improved dramatically? Do you think we are gaining disproportionate market share in our relevant market, or is it not tractable on a live basis?
Okay. Great. You see, our growth, SSG, this quarter has been largely driven by increasing footfall, right, by increase in transactions. The contribution of people, existing customers buying more number of items, has been lower, relatively speaking. Now, given the fact that we are largely gaining new footfall and that is driving our sales for sales growth, my speculation is that we are gaining market share.
Okay. We were running some pilots in Gujarat and Maharashtra last time when you spoke. Any update on the same? Where are we on that?
Okay. Great. I'm happy to report that we have opened in June quarter one store in Gujarat. Now we have two new stores in Gujarat, one in Naroda and one in Arland. We have one new store in Maharashtra in Pune Tale Town. Of course, it's too early to come to a conclusion on the performance, but I can tell you that the early signs are very encouraging. Based on that, we have actually now started looking for incremental properties in both these things.
Sure. The last one, if I may, GK, there was an unfortunate incident in the Karol Bagh store. How are we ensuring or what measures are we taking so that at least on the safety side, we are not compromising for our store's current network and the future network?
Firstly, the incident in the Karol Bagh store was absolutely the most horrible and deeply distressing thing which has happened to our business ever since we started operations, 13, 14 years back. I cannot recall anything which has been more depressing and more distressing for us. We mourn the loss of the two lives. It has been an episode which we will probably never be able to forget. Now, shifting gears to the second part of your question, immediately after that episode, while we are still waiting for the final conclusion by the regulator on what specifically happened there, because as you can imagine, the store was immediately sealed after the fire incident, and we still do not have access to the store. We are waiting for the conclusion to be arrived at as to what exactly happened.
In the meantime, we have contracted the two best fire management companies on the planet and asked them to review our fire management systems and actually apply their latest technologies in our store. There is a very large pilot which has already started, ensuring that we upgrade our stores to the latest level of understanding, knowledge, and expertise. That is at one level. There is, just to confirm, a pilot which has already started with both of them. These are the number one and number two in the world. At the same time, we have launched a major selling campaign for our store employees and reviewed all the SOPs at the store and the compliance of the SOPs at the store with a lot of focus and daily rigor. We are dealing with the issue on both fronts.
One is upgrading our fire management system to what is absolutely the latest and best in the world in the stores, including processes. At the second level, to ensure that the compliance with SOPs and the daily execution of the SOPs, which are critical for any fire management process, is being monitored, reviewed, and corrected every day of the year in 100% of our stores.
Thanks, GK. Thanks for a detailed answer and all the best for the coming quarter.
Thank you very much, Ajay.
Thank you. We have our next question from the line of Sagar Tanna from Alchemie Capital. Please go ahead.
Hi, Sir. Can you talk more about our quick commerce and how it is shaping up, especially in the three categories, and what are the trends that you are seeing in those micro markets?
First of all, we are continuously expanding our quick commerce offering to our consumers and customers across our stores. At the end of the June quarter, we were servicing 670 out of the 717 stores that we have. The quick commerce benefit was available in 445 cities in the country. There are now 10 million customers who are registered on quick commerce, and the contribution of quick commerce to our overall store revenue is improving. I can give you a range for the very new and highly competitive towns. It could be 2% - 3%, but in towns where we've been there for a while and which also are somewhat less competitive, our contribution is as much as 6% - 8% of the store revenue.
It's a constantly developing and evolving situation because every day we are adding new stores, and therefore, all the stores are at very different levels of execution. I can confirm to you that we are very satisfied with the way it's progressing.
Among the categories, where are you seeing our traction?
The maximum traction is, as we had expected, in FMCG, food and grocery. The other two categories, which are apparel and general merchandise, is relatively lower.
Okay. My second question, sir, in-house or third-party quick commerce platforms, what are your thoughts?
At this moment, in-house. As you know, we are not present in any third-party either quick commerce or e-commerce platforms because I believe that we have a unique advantage with our very widespread store network across 470-odd cities in India. I think that competitive advantage that we have, which is that we are present in 472 cities in India, with physical stock available in 472 cities in India, is a big, big benefit for our quick commerce business, both in terms of delivering high freight rates and in terms of ensuring that our goods are delivered on time. We have a unique advantage, so we will leverage that.
Got it. Thank you, sir, and all the best.
Thank you very much.
Thank you. The next question is from the line of Sheela Rathii from Mortgage Family. Please go ahead.
Thanks for taking my questions. Hi, GK. Hi, Amit. My first question was just a follow-up to one of the responses you gave in terms of the key quarters per hour where you called out that 1Q and 2Q are the key quarters from a growth perspective. I just wanted to understand from a profitability standpoint, gross margins, capital margins, which would be the relevant quarters?
Sheela, I must clarify. I said quarter one and quarter three. I had said that quarter two and quarter four relatively are lesser. It's for very obvious reasons. One is that quarter two, as you know, is the end-of-season sale period for clothing post spring summer. Plus, in quarter two, we also have a sharp period, which is quite impactful in North India, where people do not buy new things. For exactly the same reasons, quarter four is relatively lesser because that is the end-of-season sales for autumn-winter season, which is January, February, March. These two are lesser. Quarter one and quarter three are higher because quarter one is the onset of spring summer with Holi. Quarter three is when we have, let's say, festivals like Puja, depending on when it falls in that particular year, but definitely Diwali, Dushara, etc.
It's also the quarter when the winter season starts in Delhi. Winter merchandise is typically in clothing at a higher selling price. Both in terms of revenue and margins, quarter one and quarter three compared to quarter two and quarter four are relatively more rewarding.
Understood. Very clear. Thanks for that. My second question, GK, is, you know, the consumer sentiment has been pretty muted. Obviously, your growth has been tracking much higher given that we play in the right category and the value proposition which we have. Just from your standpoint, what are the barometers you track in terms of when you sense that there is a bit of a slowdown in terms of the demand trend? I know footfall could be one of them, but just want to hear from you, how do you track the sentiment for your business?
In terms of our business indicators, you're absolutely right. I mean, it is a footfall. It is the average bill value, and the split of average bill value into two components. One is the number of physical items that each customer is buying on each trip. There is a second dimension to that where the people are upgrading. Are they buying more expensive brands, or are they downsizing? They are shifting from more expensive brands to somewhat cheaper brands. We look at all this. What we also do, obviously, is that we have a very wide network, and we travel to our stores extensively. It's to talk to consumers and customers and try and get a sense as to how they are feeling. Equally, we obviously talk to our competitors at the local level and visit their stores and so on.
Firstly, I'm always very cautious in giving a response to questions like how is consumer demand shaping up because it's a combination of all this. It is not backed by any very extensive customer survey or consumer survey. At the same time, of course, we track all the developments which are happening in our economy. For example, I had briefly mentioned one of them, that you know the lowering of taxes for April 1st and more money in the hands of consumers, especially the middle class, is something which we believe will help consumer demand. It's all of that.
Right. Are there any changes you are seeing in your business in the last six to nine months in terms of the bill size or the kind of items consumers are buying? I'm just trying to get more information from you as to what is helping us and what is not working for us.
I'll tell you what is helping for us, Sheela. One is, of course, the increased footfall, as I mentioned. We are getting new customers. That's a very positive thing for us. The second thing which I can mention is that we are constantly trying to upgrade customers to the next price point in every category, and I can say that the agenda is making good progress.
Understood. Thank you, GK, for patiently responding to every question. Thanks a lot.
My pleasure. Thank you very much.
Thank you. We have our next question from the line of Jignanshu Gor from Bernstein. Please go ahead.
Hi. Congratulations on a great set of numbers, GK and Amit. Thank you for taking my question. I wanted to just ask two questions. One is regarding what we call or what we are seeing as a quick commerce initiative. What is our strategic objective in launching this year? Are we seeing a lot of demand for delivery of items and hence we launched it? Do we see it as a mechanism to get more customers? Is it a defensive approach to protect customers who might be shifting? What's the thought process behind it and how should we look at it? I mean, that's my first question, I guess, and feedback.
Okay. If you allow me, I'll answer this first, and then we'll go to your second question. Firstly, you know, from first principles, we are interested in quick commerce. Let me share our thought process. Firstly, carrying food and grocery and large, bulky items home from a store is a challenge for all middle-class customers, especially those who do not possess cars or four wheelers. They have to carry food and grocery almost every month in the buying cycle, and even large items from general merchandise, etc., home from the store whenever they buy it. That's a huge challenge for our daily customers who do not have cars and so on because the urban transport system is even congested. Secondly, the availability of that as you go outside the larger cities and towns and metro is somewhat limited.
We saw that as a clear area where we could provide relevant help to our consumers and customers. That's point number one. Point number two, of course, is the fact that, and this is especially true amongst our younger customers, their lifestyles are such now that they never actually get an opportunity to visit any store, any physical store. Their life is digital now, and therefore, their shopping is also digital now. We thought that if we are not present in that space as a very compelling offer, we may lose out on the younger customers who lead largely a digital life. As you know, we spoke about this earlier also, young people are very important for us because young people consume a lot of fashion. For these two very fundamental reasons, we were interested in this opportunity.
Of course, the added fact then was that we have a presence in 472 cities with physical stock. There was an opportunity to make the stock tangible across the two distribution channels, online and offline. Also, the fact that we were closer to the customers, and therefore, we could deliver better. There are some basic first principles reasons for doing this, and we are happy that it's making good progress. Now, just as an anecdotal fact, I'll share with you the fact that almost 20% of our consumers on quick commerce are totally new to the shop or the child store. They are therefore totally incremental to our business, and we are getting early evidence that they, in the fullness of time, start visiting our stores also. Of course, there is the fact that we are getting additional customers, new customers.
This is very helpful, GK. Just a very small follow-up. Our North Star here is transactions and not margins, right? Hence, do we keep pricing sort of same across our store and online, or is there a discount?
We keep the pricing by a large thing. It's helpful when there is a very significant competitive activity because, as you know, the competitors are different in offline and online. Therefore, there are times when our either online or offline customers engage in very, very significant competitive activity. There we have to respond, and tactically, for that period, the pricing could become somewhat different. As a general principle, every day, every month, every year, the prices are the same.
Understood. Thank you for that. The second thing I wanted to understand is on this Gujarat and Maharashtra pilot that you are seeing. I see three stores on both Maharashtra and Gujarat. We are seeing you started one. Are the other two legacy stores, or have you started those after July 1st?
No, very well spotted, I must say. These two are legacy stores. We have one store in Pune and one store in Nagpur in Maharashtra, which is pre-2011. Likewise, in Gujarat, we have a legacy store in a place called Vapi. Those are the stores which are making up the numbers. I'm happy to report that in July also, we have opened a small number of stores in Gujarat, one new store in Gujarat. As I mentioned, the early signs are encouraging. Therefore, we are now looking for new properties.
Okay. That's very helpful. Thank you so much. Again, congratulations and all the best.
Thank you very much.
Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.
Hi, team. Congratulations for a good result. My question is on here you have over 50% presence between tier 1 and tier 2 cities, whereas 50% on tier 3. How are we seeing the traction among the different cities, and what is usually driving this SSG, which started the journey?
Okay. Great. I'm happy to confirm to you that our business in quarter one has grown at double-digit same-store sales growth across all the cities, tier 1, tier 2, and tier 3. In all the three tiers, we have grown at double-digit same-store sales growth. I don't have the data in front of me, but my feeling is that the growth has been pretty consistent across the states also. Both tier 1, tier 2, tier 3, and the states, we have grown at double-digit sales growth.
Okay. My second question that we always talk about is an entry price point. How does the inflationary trend over the last two years really help us in growing that business part or addressing the customers' real concern, and how do we see growing ahead?
The role of entry price point is specific. The entry price point merchandise is to facilitate the upgradation of customers from more and more stores to organized states. That is a specific role for the entry price points. Therefore, the entry price point is not the majority of our stock. It could be in the ballpark of 10%, 15%, 20% at the most. Beyond that, as I mentioned earlier, our goal is to upgrade customers from the current price point to the next higher price point. E nsure that the average bill value keeps increasing both because of the upgradation and these customers buying more number of things from our store. That is the totality of the game plan.
Okay. That's the last question with your permission. How do we see this SKU mix change, say, apparel, grocery, and FMCG? The second question, you said that we are able to improve gross margin on grocery and FMCG. What is, I mean, lagging on the apparel side?
I did not say on the grocery side. I'm saying that the total business gross margin has moved from 28.2% to 28.4%. That is total business gross margin. The improvement has been across the three categories, by and large. It is not specifically in grocery only. The second thing which I would say is that the contribution to our C corp categories has been quite consistent over a period of time. If you compare Q1 2026 versus Q1 2025, you will find that it is quantitatively almost exactly the same. Apparel last year was 47.8%, this year is 47.4%. GM last year was 26.8%, this year is 27.3%. FMCG last year was 25.3%, and this year is 25.1%.
Okay. Thank you and all the best, sir.
Thank you very much, Ajay.
Thank you.
The next question is from the line of Prerna Jhunjhunwala from Elara Securities. Please go ahead.
Thank you for the opportunity and congratulations on a strong set of numbers. I just wanted to understand, are you also trying with the smaller format, new format? If yes, what will be the thought process over there?
Absolutely correct, and thanks for the question. We now have six stores of the smaller format which are operational in Uttar Pradesh and Haryana. I'm happy to report that both in terms of revenue and the financial outcomes, they are as per target. In the coming quarters, we wish to accelerate the rollout of the smaller format stores now.
Could you please elaborate a little more on it? What will be the product mix over there, or the product concentration plus size? What will be the focus area of properties chosen? What's the target segment? Just to give some color on that.
Firstly, the size is obviously smaller. I would say that the size would be typically 50% of our regular large format stores because the number of customers and the affluence of the customers both in the smaller towns is somewhat lower than the larger towns. The category mix is quite similar to the large format store, but the contribution of the lower price points to the total sale is higher as compared to the larger towns. The category mix, all three categories are available in all three trends. In the smaller towns, unlike the more larger towns like Delhi and Bangalore, our customers are not segmented into, let's say, middle and lower-middle-income groups. In these smaller town stores, everyone in that town, we are seeing more and more start shopping at the Vishal store. I'm just highlighting some differences.
That's helpful. My second question is on an accounting question. Why do we see depreciation declining on a small business? Is there any change in agreements or anything that we see that you can highlight to justify that?
I'm passing that on to Amit, our CFO. Amit, please go ahead.
What we see in Q4 of last year is a catch-up of leases that we have reviewed in last year. A direct comparison would be to compare this quarter with the quarter one of last year.
Okay, we should not read much into it. No problem.
Oh.
Because we have opened 23 stores, I thought there should be an increase in depreciation. Hence, this question.
Yeah, if you exclude the impact of catch-up, the increase is in line with the store expansion.
Sure, sir. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Aditya Bansal, Sammoti Laosual Financial Services. Please go ahead.
Hi. Thanks for taking my question. My first question is on the productivity levels in South India. It seems they are like 15% lower than company-level average. What are the initiatives that have been planned to improve the same, or is there something structural which is impeding this?
Firstly, the productivity levels, specifically in terms of revenue per square foot, your observation is correct. There are two reasons for that. One is that, as you know, the south expansion has happened and is still happening. We are expanding rapidly into Kerala, the mainland, and Karnataka. It's happened over the last two years. That is one reason, the total time duration that the stores have been there. The second and equally important fact is that in specifically Karnataka, where we have more than 70 stores now, our average store size is significantly higher than the average store size in the rest of the country. For example, our national average is around 17,000 sq f t, and Karnataka stores are close to 20,000 sq ft . While the absolute revenue could be higher, when you look at the revenue as INR per square foot, then it comes out to be smaller.
We have reviewed this entire situation, and we have found that the higher area is justified in some cases. Equally, in some cases, it's not fully justified. At this point in time, we are very busy in Karnataka to right-size the stores where the higher area is not fully justified. Good observation from you.
Thanks fir that . Another one was a follow-up on the store sizes. The smaller format that you talked about, is this restricted to newer and smaller towns, or is there a conscious approach to have like this larger set of apparel in certain stores? Is it because of the availability of real estate? Just some color on this.
It is specifically for the smaller towns. Typically, the small town stores are open in towns where the population is 50,000 or lower. It is to ensure that we are reaching deeper into India, and we take the Vishal offering and the Vishal benefits to places where the regular format of the store would not be viable. It is specifically for smaller towns.
Sure, thanks a lot and all the best.
Thank you very much.
Thank you. Ladies and gentlemen, that would be the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.
Great. Thank you very much. I always enjoy this call now because I have so many friends on the other side who I get to meet only on the call. Hopefully, I will be able to meet with them live also over the course of the next three months, and that's always a pleasure. I found the questions that you asked me very, very thoughtful and very, very engaging. I did not quite realize that we finished the time. It was good fun. Last but most important thing, I'm very, very grateful to you for your interest in our business. That is very encouraging and very energizing, both. Thank you very much indeed .
Thank you.
Thank you so much, sir. On behalf of Vishal Mega Mart Limited, that concludes this conference. Thank you for joining us, and you may now disconnect.