Avenue Supermarts Limited (DMART) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Avenue Supermarts Limited Investor Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rushabh Ghiya. Thank you, and over to you, sir.

Thank you, Michelle. Good morning, all. Welcome to our annual conference call. I have this morning with me, our senior management team, Mr. Navil Noronha, MD and CEO; Mr. Ramakant Baheti, Group CFO; and Mr. Niladri Deb, CFO, ASL. We will follow our usual process where Navil will take you through the investor presentation, which was uploaded last week. Before I hand over the call to Navil, I'd just like to draw your attention to the safe harbor statement, and then I'll request Navil to post take you through the presentation, and then we'll open up the floor for Q&A. Over to you, Navil.

Thanks, Rushabh. Good morning, everyone. As it is every year, I'll give more time for Q&A. I'll run through the presentation, which has already been uploaded. Page 5. Like we mentioned our General Merchandise and Apparel contribution has been lower than the past trend. So while Food and Non-food FMCG are more or less trending on similar lines. There has been a higher impact on the downward side on the General Merchandise and Apparel sales contribution. And consequently, that's why our gross margin -- our margins have reduced in the recent past. Our cluster based expansion strategy continues. We've constantly focus on this lever of operating leverage, which comes by having more and more stores in the same region, and that continues. We added 20 -- 40 stores in this period. And I mean it's the same -- more of the same. Page 7, DMart Ready. This is our e-commerce business model, which is Avenue E-commerce Limited. We added 10 cities, but we are -- the additional store -- city locations have not added to that extent in incremental revenues because the structure and format which we operate are more like a pilot. And hence, we are still more of a work in progress approach to the new city operations. We continue to believe that grocery e-commerce has tremendous opportunity in very large towns and dense -- densely populated or vertically densely populated towns and we continue to have that belief. And hence, to that extent, our focus will be more dominant on the large towns of the country. Page 8, again, it shows a trend line of a number of stores that we opened. Financial year '22 shows 50 stores because that was more of an overlap of delayed openings of '21. '23, we opened 40 stores. I've spoken a lot on our real estate strategy and the reasons why we cannot accurately predict how many stores we will open in a year. But our intent and objective is obviously to maintain a run rate of the past. So that's the broad point of view there. When we go to operating and financial summary performance. Again, the format, the structure all remains to the -- total bill cuts have moved from INR 18.1 crores to INR 25.8 crores. Like-for-like growth -- we do like-for-like for 2 years in all the stores that's been 24.2%. But I think the more critical point to note is -- which I mentioned in my comments for -- in the quarter ending Q4 where I said the like-for-like for 6 months was, I think, 11%, yes. So that's the more comparable number that has least COVID impact, and it's a more comparable number where like-for-like was 11% for second half of last financial year vis-a-vis year prior to that. Again, we added 1.9 million square feet, and revenue from sales, obviously per square feet at INR 31,000. This is primarily because the store sizes are larger. We are quite satisfied with the recovery. Except for -- I'm sure there will be a lot of questions on General Merchandise and Apparel contribution. But other than that, I think we're pretty confident of the business. All COVID-related issues are behind the back. We're very bullish on the brick-and-mortar business, and we continue to focus on this area. We believe that there's a huge, huge opportunity to do better and better in the brick-and-mortar business. So INR 31,000 per square feet is more a factor of larger store being opened in the recent past. Otherwise, from an ROI perspective, overall performance result -- I think we are placed pretty well. Page 11, again, is the same -- more of the same. We've done INR 41,800 crores of revenue. EBITDA is 8.7%, PAT of 6.1% and net cash flow of INR 3,113 crores, I think it's quite stable, and we're quite pleased with what we have done. Again, Page 12. Days Inventory, that's an interesting data point. It's coming on from 36.5 and 33.3 days to 28.8 but this is -- I think I'd like to spend a little bit more time there. I think that's the beauty about the model. Our ability to be agile and flexible, it's automatic, right? So if General Merchandise and Apparel, which tend to have more inventory, if that's not doing too well, the inventory by itself also gets corrected. And because the contribution of Food FMCG and Non-food FMCG increases, and hence, the mix of inventory also changes. So that's why the number of days have come down. And on fixed asset and inventory turnover is, again, we are slowly inching back to our pre-COVID numbers. In fact, it's getting better with time. And obviously, return on net worth and return on capital, these are all self-acceleratory numbers. But I think we -- the trend lines everywhere is coming back beautifully to the pre-COVID levels. And we are quite happy with how we are trending on that front. I will jump to -- not Page 13, but Page 14, which is a more interesting slide. Page 13, I mean it's all self-explanatory, but we'd like to spend some time on the e-commerce business. The -- what is interesting here is that our view is that all the worries that we had about how much money we're going to lose and how this business is going to trend is actually 90% gone. We're quite confident with our ability to run the e-commerce business. And we feel that it's not an either or. The E-commerce business, or DMart Ready business has kind of drawn its own path and build the business on its own. Having the tech mindset and approaching the market from that side point of view and probably another 2 to 3 years will tell us what will be the cost side and the margin side impact on the business. The one thing I feel about grocery is, the grocery business, if run well on the e-commerce side, cannot lose too much of money unlike the marketplace. And I think that's a huge positive for us. I mean, all the anxiety that we had about how much money this could loss has actually gone. We know now that it can't lose too much of money. How much money will it make? I mean that -- we cannot comment. Broadly, I can say it will be driven by what are the gross margins we'll make in this business, which is quite challenging. But the cost of operating the e-commerce business will be a little more or probably relatively more -- I'll not say little more, relatively more than running a brick-and-mortar business. The fact that the order is being picked for the customer and being delivered to the customer at a more convenient location, either at a home or closer to our home is going to cost more than running a brick-and-mortar business. That's a broad view that we have. So from that standpoint, I thought I should comment on the e-commerce business. The Food Plaza business is basically all the food services. We see an opportunity there. So the Food Plaza business helps in making the brick-and-mortar business more stronger and similarly, the Align Retail business, which is again a subsidiary which manages all the staples business. We also believe that, that's another area that has immense potential and opportunity to make the brick-and-mortar business stronger and stronger. And then we've also started our pharmacy business, which again the whole principle is it complements well with the brick-and-mortar business. And hence, we're also paying attention to that side of the business. So with that, thank you for listening and open for questions, please.

[Operator Instructions] We have the first question from the line of Avi Mehta from Macquarie.

I wanted to first start with the General Merchandise and Apparel segment. Now in this quarter, you have highlighted specifically that General Merchandise has recovered, but it seems that balance is yet to bounce back. The question that I had is, would you believe that online peers like Myntra or offline peers Zudio, are able to win customers from our apparel offering -- up from our apparel offering? And what are we doing? Is that a concern for you? Or if you could kind of just spend some time to help us understand what is missing or what is hurting the growth in this business segment?

Thanks, Avi. Yes, so I would say it in 2 ways l -- or probably. So let's look at this way, external and what's internal. I think externally, we all know what's going on. I think the whole country has certainly figured out that this is a space that has a huge opportunity, and you have a lot of players who are trying to get into this space. This typical INR 1000 and below price point, more focus around INR 500, INR 600 price points. And obviously, earlier, that segment, you had fewer players. So obviously, that's one area definitely, okay? There's a lot of activity happening there. And people are getting more choices. And when they have more choices, obviously, it has an impact for us. We're also seeing -- and that's another complement for our model is that because we drive so much of traffic. I think there is a clear mandate, is what we see, that a lot of these formats open very close to where a DMart store is. So that's the second thing, which are both external, which is happening. And internally, I think -- probably Apparel is -- may not be the best Aligned category compared to staples or a General Merchandise. I think from an aspiration standpoint, for a supermarket or a value retail -- grocery retailer, Apparel may not be seen or pursue to be that aspirational compared to a General Merchandise or buying food or all of that. And that's an accepted norm. If you do any psychology, consumer psyche testing on all these aspects, that clearly comes out. So now considering that, considering what's happening in the market is getting more efficient. What is it that we need to do internally? And that's where my question is, I think we need to do a lot more work internally in. I think on an internal structure standpoint -- people standpoint, on the Apparel category management standpoint, I think there has been some misses, some opportunity misses or the quality of thinking that is needed on what we should do is -- has got a bit lost. And I think we need to work really hard there. And -- our view is that we have to make the -- we can't be what somebody else is trying to be, okay? So we are very clear that we are of first grocery format. And within that, how do we position Apparel? I can't be a Lifestyle, discounted retailer of apparel, a specialty value retail. I can't be that I am a grocer first. So within that space, what is it -- what is the opportunity I have? I think there is still a huge, huge opportunity to address in the basic segment, and we are working on it. But we are approaching it from a perspective about anything that's very low on high fashion, but very, very basic, great value, immense value, applying the principles of DMart. So like I always say, if you want to wear a T-shirt, to be worn at home or you want to wear nightwear, which you wear at home or you want to go to a local bazaar to do some shopping, you need some apparel or footwear, you come to DMart. But if you want to go to a 5-star hotel or you want to go to an expensive party, DMart is not the destination to buy apparel. We're very, very clear about that. I think somewhere there, we have to be more precise and we have to fine-tune our assortment more effectively from that standpoint. And I think with that, we should be fine. And I think also our conversation should not be binary that is General Merchandise and Apparel. I mean, Apparel should not be the issue. I think the ecosystem around non-FMCG and what are the other saliences that we can have by adding more and more horizontally into the format is something we should think about. And that's the longer-term opportunity. That's why if you remember, I've been saying that the opportunity of having larger stores, it allows you to experiment, yes? So it's not just about Apparel not doing that. In the longer term, quite likely Apparel will continue to have a lesser contribution to our business, and that's okay. Yes? I hope I've been able to answer the question.

So if I just -- as a simple follow-up -- in terms of the General Merchandise and Apparel total sales, would it be fair to say Apparel is a relatively small component of it or a majority equal component? Any idea just -- I'm not -- just to kind of understand the extent of how much this track can be at least from a near-term perspective? Because I hear you that there is a portfolio work that you are essentially doing to better address this opportunity, but if you could give us some understanding of the extent of this salience?

I cannot comment on that, Avi. All I can say is that between the two, Apparel is a lesser of a contribution. That much I can tell you.

Perfect. That's all. Sir, the second bit, if I may, on the -- you had highlighted in the last meet that e-commerce is not a concern for us from a brick-and-mortar. A, if that thought continues? And B, are you thinking of exploring that space through DMart Ready because there is a clear consumer [ mandate ] and I remember your earlier comments that you said we will go where the consumer is. So just wanted to understand this better.

Yes. I think we are in a very sweet spot from an e-commerce perspective. We -- the way we are doing our brick-and-mortar business is also what we are looking at in terms of ensuring that the customers buy more and more. So our focus is on increased basket values, and our focus on customers continuing. Every time she goes on to he or she buys on Ready, her basket value has to be large enough. So I think when we are focusing so much on that, going the quick commerce way -- so let's put it this way, instead of ordering twice a month, if she starts buying 6x times a month or 7x a month, but the basket values are sizable, happy to service her. Now if you call that quick commerce, fine, let's call it quick commerce. But we all know what real quick commerce is, right? There's a lot of impulse. There's a lot of load ticket value. It's all about delivering in the next 30 minutes. I don't think we are focusing on that space. We're focusing on bulk. But we see an opportunity in delivering earlier. Earlier -- which you deliver on an average, maybe 50% of the orders in 24 hours. Now we're saying 100% should be in 24 hours. And within that, if you are saying, okay, how much of this can be delivered in 12 hours? I think delivering in 12 hours is a good vision to have, considering the size of the order we have and considering the assortment of the orders. See when a customer on DMart Ready shopping, she is not expecting the order in just 30 minutes, she is not expecting it in 60 minutes, right? Because the heavy stuffs, buying a lot of groceries, it's like her monthly shopping. She gets great value. And she also uses other apps to get her stuff quickly, right? So -- but we'll focus on the bulk as of now, Avi.

And sir, if you may allow just last bit, any change in discounting from peers? Anything that we should -- if you're seeing reckless discounting kind of emerge or from the other offline or online peers?

If that continues our margin is a reflection of what is the benchmarking that is operating in the market. And I think nothing much has changed like-for-like from last year to this year. So I think it remains the same.

The next question is from the line of Garima from Kotak.

Navil, first question again on General Merchandise. At some level, do you think it is unfair for us to assume that the contribution of General Merchandise to your overall revenue mix can actually go back to pre-COVID levels? Or should this just find a new intermediate normal?

It's a good question, Garima. So when I look at our very, very old stores across the country, when they started. And I've responded to this question even in the earlier analyst meet, but I will say this again. So whenever these businesses start, whenever these locations start, the non-FMCG contribution, that is General Merchandise and Apparel contribution are higher. And as they mature, the contributions of General Merchandise and Apparel reduce, okay? It has been a secular trend for the last 20 years. And why does that happen? That happens because when you open a store in an area which is fresh new, first-time DMart, you tend to get a lot of people from a larger areas. And then they happen to be there, they buy groceries, but they also buy a lot of General Merchandise and Apparel. Over a period of time, what happens, people who are more and more closer to the store, their shopping becomes more intense, they come -- the frequency is more intense. So more frequency and more the shopping intensity, automatically they're not going to buy the same percentage or the same contribution of General Merchandise and Apparel. They tend to buy more and more of groceries. So as the revenue keeps growing at a healthy CAGR every year, there is a higher revenue share of FMCG than of non-FMCG. So yes, so from that perspective, yes. But if you ask me today, as of this year, from a General Merchandise and Apparel, should I take that view and say, "Oh, nothing -- there is no issue, not really. We do have an issue in apparel specifically. I also commented in my Q1 comment that GM was probably -- General Merchandise was more of a COVID and lot of other things, and we've got it back more or less -- I mean it is coming back. But Apparel is an issue for the question -- for the comments I made just recently, and we have to work on it.

Understood. Second question, can you talk a little bit about the cohort of new large-sized stores, particularly stores that have opened in relatively new areas such as parts of NCR, Punjab, et cetera? And are these stores from a throughput and store economics perspective behaving generally similar to your older stores in geographies that you've understood very, very well?

Okay. So both Punjab and NCR are quite delighted. Store economics are trending similar to how we used to trend in other regions when we started around for the same tenures. So we aren't having any issues there. We are quite happy with the outcomes. So no issues in NCR or Punjab.

Understood. And third question quickly on e-commerce. So could you highlight the performance of this business within Mumbai because this is your sort of longest performing geography. And how much of your revenue is being contributed by Mumbai? And in terms of profitability targets, do you expect this business to breakeven in Mumbai anytime soon?

That depends on how you define breakeven. Different people have different views on breakeven. For us, breakeven is at the PAT level, considering head office cost, everything, everything, everything, right? So from that standpoint, I can only comment one thing Garima that MMR region is better than the overall company.

Overall company, meaning Avenue E-commerce?

Yes, Avenue E-commerce. I think Avenue E-commerce is a loss of negative 9% on revenue, right -- 8.79, yes. So Mumbai obviously is better than this. That is all that I can comment.

But the majority of the revenues would still be Mumbai. Is that fair to assume, although you have added a large number of cities in, say, the last 12, 15 months?

Yes. Yes, majority of revenue is from Mumbai, but the operating losses in the newer regions are significantly higher, right. Because when we start up, so you -- so yes.

The next question is from the line of Arnab Mitra from Goldman Sachs.

My first question was on the relatively lower salience of GM and Apparel. So Navil, my question was, does this in any way affect your ability to offer lower prices in grocery while maintaining your gross margins? Or are there other offsets like potentially higher scale giving you better margins from your suppliers, which will allow you to maintain your GAAP with competition on pricing despite having lesser salience of the high-margin categories?

The answer is it has not -- it has no bearing on our ability to compete. And -- so -- and that is why the gross margins have come down, right? There has been no attempt internally, and, "oh, my contributions are lower here, so I'm making lesser margin. So I will raise prices or I'll hold prices, I will not compete. Absolutely not. And that's why our gross margins have come down. And the business -- I mean, you see the numbers, right? With the PAT, we have, there's no worry. I mean from a competing standpoint, there is nothing to bother about. It is that PAT will go down. PAT, as a percentage of revenue will go down, so what, but we will compete.

Got it. Got it. Understood. And, Navil, the second question was, if I look at your overall bills cut, this is one number which before COVID used to grow at 20%, 25% every year. That seems to have on a 3-year CAGR basis, grown at more like 8%, 9% in the last 3 years, the post-COVID. Anything that you read into this? Are there less customers? Because your store space addition has been similar, if the pace of new customer acquisition, even in grocery reduced? Or how would you read this data point?

The only broad point we look at our numbers is that over the last 2 to 3 years, we've opened a lot of stores in smaller towns, okay? And like I've always mentioned, smaller the town, lesser the cost of real estate, but overall investment lesser, but revenue becomes higher even the revenue is low. So number of bills are lower, walk-ins are lower. So it is a mix -- it is a mix that -- of new store additions that is making you look at the numbers that way, I mean which is a fact, but it's primarily because -- now let me put it this way. I think 5 lakhs and above towns, we used to have 68% of stores 3 years back. It has come down to around 60% now. So 40% of our stores are below. So broadly we have opened more stores in smaller towns that's why the numbers are looking like that.

Understood. And my last question, Navil, was on store opening. As you mentioned, you probably want to maintain the run rate of 40 stores a year. Given the opportunity size, I think you last time mentioned more than 1,000 stores potential that you see -- is there any internal way you could accelerate this addition because your base of stores is higher, so as a percentage of base the addition is actually slowing down if you do not increase the number of stores?

The one single bond mandatory store additional. I think from a model business, everything is fine. It's just store addition. That's a single point agenda.

So my question was 40 per store a year is not a constraint in terms of your internal like bandwidth of adding stores.

Not really. We have to work harder is all I can say. But yes, it's a huge opportunity, and we have to accelerate our ability to acquire more stores. It is a huge effort. I mean, 40 stores every year, the amount of work that goes behind, but we have to do it to -- that's very simple. That's the single point agenda now for us. All other levers are ready to fire. Our ability to run the stores, our internal processes, systems, tech, everything is ready. It's all prime. We just need to open more stores.

We have the next question from the line of Sheela Rathi from Morgan Stanley.

Just extending to the previous participant question is, with respect to stores. So, Navil, the first question is, is availability of good land parcels, a bigger concern or availability of employees, a bigger challenge for us?

Obviously, land is a bigger issue because land is a bigger issue, then you have to have a solid team to get those properties. But when land itself becomes an issue, then it has an exponential effect. You have -- everybody is chasing the same resource, right, who has great expertise on this. And hence, having a large number of people who have that expertise and to convert or close deals is a challenge, and hence -- but we're working on it, right. Yes, but land is an issue. It's not easy -- that's why very few retailers do this, right, in India?

Sorry?

That's why few retailers do this, right, acquiring land or building stores. I mean it's generally -- the reason why retail everybody -- a lot of retailers go to the lease model is because this is a difficult area to handle.

Yes. But from a near-term perspective, are we seeing challenges with respect to getting more people in our workforce? And we have always maintained -- sorry, 20% to 80% ratio with respect to contractual versus permanent employees? Are we looking to change that?

Not -- the structure of the model remains the same on all elements of the business.

Understood. And then my second question, again, is on the GMA bit, sir you said that the we're grocery first, so if we believe that the focus on GMA could be modified and could be different from the past, are we willing to say that the gross margin profile for the business could be different and would be instead of 15%, could be 13%, 14%? Is there something which worries us? Or is there -- we are thinking about that in some way?

I can't comment on that. All I'm saying is whether it is 16% or whether it is 12% or 13%, the business is resilient. The business is adaptable, agile and see key point is being relevant to the customer with the positioning of value, right? We shouldn't disturb that. I mean how a consumer or a shopper thinks about DMart that shouldn't get disturbed at any cost. So for us, our view is we think from that standpoint. And within that, then whatever the outcome is the outcome. So our direction to the team is this, at the operating side and the merchandising side. This should never be disturbed. And then the operating side operates the business efficiently. The merchandising team then figures out what should be sold and at what cost and at what margin, yes? I mean, what price and what margin, that's it.

Understood. And my final question was with respect to DMart Ready. I think you never been sounded much more positive with respect to the e-commerce business this time versus in the past. So what has changed. I am one of the consumers who get that 12-hour deliveries. I'm very happy about that. But is scaling helping us to be more confident that we can be profitable at some point of time? Or is there some strategic change which we have done that is helping us to feel more confident?

I was just joking with my team today morning that for all the tech that we talk about in the e-commerce business, at least for grocery, actually, it is more manual labor involved than a brick-and-mortar business. Because the effort involved in picking the material and delivering it to the home, actually, that cost element and that people management is a significantly larger effort, actually, okay, compared to the brick-and-mortar business. And secondly, I think from a -- even from a SOP and a process orientation, people think that brick-and-mortar business has more, in fact, that's completely wrong. The e-commerce business, especially on the brick-and-mortar -- on the grocery side, the level of precision that you need from a standard operating procedure is at a different level because somebody has ordered something 12 hours or 24 hours back at a particular time slot and they want it -- I mean, the lag between ordering and actual delivery is like 12 hours or 14 hours, okay? It's not immediate. When you shop in a store, so picking the stuff you're getting billed, right? You're billed exactly for what you've picked, which is quite -- I mean if you make a small mistake, there could be one item short or two items short practically on every single order. I think from a sheer operating principle standpoint, the e-commerce business actually is significantly more complicated on the operating side and the people side than the brick-and-mortar business. And obviously, we -- I mean that was also one of the thoughts we had that if this has to be done really well, then we should be able to do it because we are supposed to be good in process optimization, efficiency, all of that. And I think from that standpoint, why we are more confident today that we can run this business, okay? We're using the same principles as which we started the -- we run the brick-and-mortar business, yes? And secondly is the tech side of the business. I think we have a marvelous team, fantastic. They've done a brilliant job. So there are also -- I mean, they complement and they are the forefront of this business because how they imagine and how they think about running it is very different from what we -- how we think. And hence, keeping this business separate has helped us a lot. So it's a complement. It's a win-win on both sides. So that's why we're more confident. And from a financial standpoint, we are more confident that we won't lose too much money. Yes. So that's why the confidence.

The next question is from the line of Latika Chopra from JPMorgan.

Let me continue with a bit on the e-commerce. I just wanted to understand, you are currently in about 22 cities. Would you look to expand to more cities or you will want to scale up operations in more cities first and as per the revenue sheer is concerned, you are on a consolidated basis, both a single-digit share but for Mumbai, if e-commerce or DMart Ready now it has a double-digit revenue share? And does it in any way is starting to influence your physical store expansion plan?

So okay, if I got all your questions right. Choice between having most stores in the same city versus...

First is, will the e-commerce continue to expand more or would you consolidate first? Latika, that's right, right? You want to understand if we are going to expand...

Yes. To more cities or you are happy to first scale up in existing cities?

I think we will now focus, take a pause and focus on these cities and try to scale up within the existing cities rather than move into other cities on the e-commerce side. And as far as cities like Mumbai is considered, that's a very interesting point. And I think that's also something very fascinating. In spite of a decent contribution coming in from e-commerce in Mumbai, our Mumbai stores are also doing well. I mean, they haven't declined. They haven't got revenue incremental on e-commerce at the cost of the brick-and-mortar business, which is also telling us that these are probably 2 very -- while there will be a little bit of an overlap, but we have 2 different need customers that exist. So there is a huge cohort of customers who like DMart but probably are not shopping in DMart and they are now all going to DMart Ready. So yes.

Okay. And how are you getting the mix now in terms of home delivery versus store pickup? And is it possible for you to share the count of DMart Ready stores pickup points?

Pickup points have been mentioned -- yes, because there's a revenue between the 2. We don't split. See, our view is, both will coexist, both are equally important for us. And we are focusing on both right now. There could be an opportunity to calibrate pickup points a little bit more so that the operating leverage that we desire from pickup should kick in. See, as a service, it's great, but as a financial modeling standpoint, it should work. So if it doesn't work, we will scale it down. So to that extent, we are calibrating it, but we'll focus on both channels.

And Navil, any updated thoughts on our private labels and on customer data leveraging now that you're calculating all of this data through DMart Ready.

No, our position remains the same. So private level comments remain the same. I mean it's a long game. We're doing fine. It's good, but we can do -- we have to take a 10-year horizon probably in terms of how we want to build it. The team's focus is primarily on building great quality at great value.

But maybe the share increasing given the focus on smaller towns, I would assume because the customers might be a little more price conscious there, private labels could be doing better. So on an aggregate basis, is share rising more even gradually.

Marginally, marginally, but not really -- nothing for us to have a different strategy for small town, not really. I think the model is great. If you have just one approach across all stores. So it's more efficient especially for private label strategy.

Okay. And nothing incremental on customer data leveraging...

No, not yet.

And the last one is with mini mart store format. Any feedback, experience, expansion plans here?

So again, it's a test. I think -- we imagine this format to play a more deeper omnichannel role in high-cost real estate places like Mumbai or Pune. So we're just testing it. So you buy from store, you pick up from store, both these options are made available. So we are testing it from that standpoint.

The next question is from the line of Vivek Maheshwari from Jefferies.

A few questions. First, Navil, going back to the same store additions. If you are talking about, let's say, 40 store addition, that would -- that implies less about 11%, 12% on your base of stores right now. Where do you think -- if you take a 3-, 5-year view, where do you think you will be happy shouldn't this number be more closer to 15% or even higher in the context of opportunity? And in that context, is there -- you have, I think, spoken about it in the last analyst meet also, but how about, let's say, long leases, if you can get those, are you still averse to making that a reasonable part of your total additions?

So I've commented last year also, now it's not really about lease versus buy. The challenge is getting a 30,000, 40,000 square feet store is an issue, especially in the structure and form that we want. We don't go to malls. We'd love to go to malls, but we don't go to malls because of the ridiculously high rental costs. In fact, we were just discussing this over the last few months. If you see now, in fact, the funny part is in a lot of cities especially in the large metros, you are seeing. I think the malls have become more and more premium in look and feel, okay, compared to earlier. And it's exactly opposite to what we want and the -- I think someday the cookie has to crumble and we have to be invited or we should be able to operate in a mall is my belief, but at an appropriate price. Because currently, the rates are ridiculous. I mean it's extremely high. The rental values are too much. So that apart and what are we left with? We are left with are standalones-- or we are -- okay, let it put this way also that the real estate challenge is primarily in large towns, from a land and everything. And that's why you've seen that a lot of our stores have opened in small towns, much easier to get properties there. But the point is the business is also in [indiscernible] . If I want INR 100 crore-plus revenue or INR 150 crore revenue store or a INR 200 crore revenue store, so they're available in large town, right. I get my revenues very quickly there. So -- and that is where the effort is needed. So like I said, we are ready. I mean we are working hard towards it. But yes, it's going to be tough.

So. Does that mean there is a period of, let's say, in the medium term, there's a possibility that the growth rate really comes up quite a bit. So even if I just do a quick and dumb math of, let's say, 10%, 11% store addition and, let's say, 6%, 7% [ SSS ] that means that you will be 15%, 17% kind of growth company. Is that good enough for you, Navil?

I would love to do it better, definitely better. Not good enough for us, but obviously, we have -- if we get more stores, obviously, we are ready to open more stores. Not good enough. Obviously, like I said earlier, the single point agenda is adding more stores.

So as things stand today, Navil, what is the -- so let's say, 3 years out, so for about FY '24, '25, but whatever you can see 3 years out, can you add, let's say, 60, 70 stores sitting today? Is that what you can do or you still will stick with 40 number?

It's not to do with my ability from -- when we say our ability, I will say 80% is our operating ability. We are ready to open 60 stores per annum. We have that ability but from a market standpoint, opportunity of real estate, okay, that pulls us back. Our ability, once we've acquired property to build it, get all the permissions and open it and then run it, 60 stores is very easily doable. We can do it, okay? But will we be able to get 60 at a run rate level every year from the market for the next 2 years? I really don't know. Next year, for sure [Foreign Language]. I'll also categorically mention that. We will not open 60 stores this year.

Okay. And sorry, one more follow-up on the same question because this is important from a modeling standpoint. So with all the excitement that I hear in my morning meeting around real estate and the property cycle, et cetera, et cetera, there is a chance that the property prices may stay high and whether commercial, residential, I'm just equating everything together. Does that mean that hampers your -- and assuming that your real estate cycle stays as strong as it is in the next 3, 5 years. Does that mean that store additions at DMart could be lower than what, let's say, the general expectations that investors have? Is there a risk on that front?

Because real estate value is going up?

I'm going to say, real estate, let's say, the markets remain as buoyant as those are right now and the prices remain as firm as those are right now?

Yes. See, while the real estate values they go up, even our revenues have gone up. If you look -- take a 7, 8 year period of real estate prices vis-a-vis our revenues, I think -- if I look at it at a net-net level in large towns, I think our position is actually a little bit better than 6, 7 years back from an ROI standpoint, Vivek, yes? It is just a question of getting those properties, and it's also a sense of -- because of the typical nature of our buildings. It gets a little bit difficult. So -- and now let me give you an example of Mumbai. In Mumbai now because FSI has gone up so much, okay? We can make locations workable, which are not workable in the past. Because the builder has got that much more to construct -- earlier the FSI is to be 2, 2.5, now FSI's have gone further up, right? And then we can carve out a small space of 20,000, 30,000, 40,000 square feet. And at the cost that are currently prevailing in certain parts of Mumbai, we can make a DMart workable. But the sizing of our stores are very different. So getting that alignment with the developer ecosystem is a bit of a challenge. But from a modeling standpoint or availability of the current market price of real estate to our ability to buy at that price, I think we are slightly better than what you are at 7, 8 years back.

Okay. That's good to know. The other thing is, Navil, with the deflation that we are seeing, let's say, FMCG companies taking down prices and that's an important piece for you. And some of this may spread to as spectrum prices I know those are still volatile, but if those go down, does that also concern you from a let's say, gross profit per square feet or per store basis, those -- but prices may not look very good. So how do you think about that?

Inflation impacting us negatively?

That's right.

Yes. See, when you look at deflation, whereas inflation on both sides, we are pretty well poised if it is not excessively high across all categories. So for example, let's look at edible oil today. There's been a decent amount of deflation that is happening. There's been good because there was excessive inflation last year. So if you have excessive inflation or excessive deflation on very few categories is okay. I mean we're just a pass-through, right? So it doesn't matter. So when you have very large structural issues, then only it impacts us -- either way it doesn't impact us at all.

No, sorry, why? Because you are a pass-through. So are you then suggesting in a deflation theoretically, let's say, the overall deflation. And again, I'm taking a very stretched number, but let's say if it is minus 5%. Are you suggesting that will be offset by higher volumes and therefore, the throughputs as in terms of gross profit per store or per square feet doesn't go down?

It -- we don't say -- every category or every item doesn't go through the same levels of inflation and deflation. That has been -- whenever we look at data. And we have a percentage markup principle, right? And if prices go very, very high, then we also recalibrate our margins downwards. So that's a continuous process. So -- but in the larger scheme of things, there is no impact per se for us from a profitability standpoint. Because it doesn't impact every single category. Blended average -- my point is, blended average doesn't get distorted too much Vivek, maybe a few basis points here and there.

Got it. Got it. And 2 more, if I may. One is on Slide 10 where you have revenue from sales per retail business area. So if you look at F '19 INR 35, 647 versus INR 31,096. So Navil, if you just keep the stores constant as at 31st March 2019 and look at today's number from the same set of stores, is that number higher, reasonably higher than where it was in F '19?

I don't know where the question is trending to, but I've not done the math the way you are mentioning. But I think the better way to look at it, Vivek, is look at SSGs, okay? we are quite -- SSG has softened for sure, okay? But we are -- nothing is declining. Everything is healthy, growing. They are -- like I keep saying the older stores are close to inflation or slightly lower than inflation. Wherever these stores are not doing too well, it's frankly because we have another store open close by, yes. And otherwise, our belief is that we've opened larger stores just to accommodate more traffic, number one, for the longer term. And the second thing is also to experiment and try in more and more categories non-FMCG space.

Okay. Okay. And last question, I don't know, again, it's a fair question or not, Navil, with all the issue that we are seeing in, let's say, general merchandise and apparel, if I just draw in again, as I said, pardon if the comparison is not correct. When I look at Meesho; around the same time, let's say, Meesho has moved from 0 or maybe $0.5 billion GMV to about $4.5 billion GMV. Is there a possibility that some of DMart customers may be shopping general merchandise online because there is value and there is convenience also? Or that is a bit of a stretch in your view?

I have never claimed that we have exclusive right on our shoppers, okay. There's no sense of exclusivity at all. I'm quite certain. In fact, in my own home, we try everything, right? I mean -- and that's the way it is, that's the power of a free market. So I mean, what is my comment...

My only point is general merchandise/apparel, is it a macro issue or is there -- so you mentioned about competition from an off-line space -- in the offline space. And what about, let's say, someone like a Meesho has moved from $0.5 billion or thereabout to $4.5 billion in literally 4 years and provides convenience in -- and value -- I don't know the product quality, but at least pricing-wise, is quite competitive. Does that worry you from a competition standpoint?

The only thing that worries me is that why am I not adding more stores. So my point is, I don't know about others, but the market is so large, it's available for everyone. It's available for me, whoever does whatever 5x, 6x of revenue or maybe 8x of revenue, great -- good stuff, well done. But is it impacting me negatively? Not really. Is there a churn? Of course, yes, some people are dropping off, some people are buying more and less now from DMart. But I'm also getting new customers who are trying me and buy me. I'm getting a set of loyal customers. The point to make is that the market is extremely large. When should I be worried? I should be worried if my overall business at a store level is not doing too well. And from that standpoint, like I've already commented, we are very confident on the general merchandise space. We've already more or less come back there. FMCG space is doing lovely, it's doing fine. Apparently, yes, we have work to do. Yes, it is a macro issue, but it's also an internal issue. So we are working on it. And that's why -- I mean some years, you don't do well on certain things. You lose sight on certain areas. We're working on it, yes.

The next question is from the line of Amit Sachdeva from HSBC.

Much of the questions have been answered, but let me go back to general merchandise and delve a little bit deeper there. So if I look at -- come what may, I think the DMart has a great appeal. There's a larger footfall. And whether you like it not, fashion has become still larger part of the revenue, right, in merchandise. And I would have it a guess that probably you are still one of the largest fashion retailers in the country, which is organized, even though you are not intending to be one. You're a grocery retailer and you want your choice to be very clear that you want to do those things that doesn't require high-fashion content and offers great value, which I totally agree with. My question is that while the value retailing principles that apply to grocery, wherein consumers instantly feel that he is getting consumer surplus or getting delighted with the prices being offered and good being standard, he can compare across. Fashion and merchandise is not so much so but I also observed that in this quest, the [ seed ] has become little inferior because if the quality of good was superior and the prices were low, there is a consumer delight happens. This has become a little challenging in probably merchandise. Do you need to rethink about those principles as well because fashion has probably been not attended that well. Even general merchandise other than fashion, needs complete rethink about sourcing and also better marketing in the store. I know you're not a fashion retailer, but it would require slightly harder selling in some sense. So is there a lot of work to do here. You need to rebuild teams, build rethinking, what is the steps involved in and as you deal with that? Would you tell us a little bit how you plan to ship this, please?

So Amit, you answered the question yourself. It's how you run businesses, right? We are to look at people, competencies, market, customer and one thing which we keep talking about internally is pre-COVID, post-COVID. Pre-COVID to post-COVID, I think, everything has doubled, revenues, number of stores or at least 70% more, right? So while we were not in the best of action because there was work from home, you have COVID disruption, all of that. Suddenly, we all come back to work and we have realized that the company has changed a lot from what it was pre-COVID. You actually and people sometimes don't get it, there's -- so much has changed, yes. We have added so much, more stores, so many more distribution centers, so many more people, yes. So yes, it has created significantly larger challenges for us. But I think we have a challenge to work towards getting it right. So we -- and generally, when you go through a rough patch, it's probably the areas that are not very strong that impacted the most. And that's where apparel has impacted us more, it is more core, I mean and General Merchandise, I don't think. And that's our bread and butter. We understand that very, very well. And our view there is there's no quality or a customer standpoint challenge, okay? It was more of a macro issue, which is getting corrected over a period of time. And we're very confident there, apparel needs more work.

Navil, the reason I ask this question is I just wanted to [ confirm ] how large is the problem according to you? And how much time will it take to sort of address that and thirdly, whether the impact of that headwind whatever that headwind is [indiscernible] part of it. Has it been bottomed out and you're seeing more flattening base there? Or you're seeing still continued store level headwind coming from the apparel side? That's exactly what I wanted to talk, to be honest, with that question.

So Amit, you've seen the financials, right? I mean if -- I hope I get more questions than just General Merchandise and Apparel because end of the day, this is going to impact your gross margin and PAT by a few percentage points, yes. I mean you've seen the numbers. You see that red lines. So it is not -- it's an issue, but it's not so much of an issue, yes, we're working on it. And like I've already mentioned, Apparel is smaller contributor compared to General Merchandise.

Understood. Understood. And second, if I may, Navil, you made a comment that for the network rollout, there's a large town focus, where there's a vertical development because that's where you see larger opportunity? And has that thinking shaping your network rollout as you go forward? And if that is a construct, are you more keen to go in the larger towns and less in the smaller towns. And if that's the case, if you could just hazard a guess to how many years that you could double the retail area that you have given the construct you're thinking about this. Not really asking about the store guidance, but broadly, as you double your business, in how many years do you think the area will double thinking about this construct?

So Amit, looking at the size and the ability of the balance sheet, we can go large towns, there are small towns at the same time, especially in the states we already operated. So there is -- while like I mentioned that from a financial standpoint, obviously, having more stores in large towns is better but that doesn't mean that the small town opportunity will not be captured or will not be harnessed. We will be doing everything. The balance sheet allows us to do that. And for the rest of your question, we always don't give our projection right? I keep saying this judge us based on our past performance, and that is what we will stand by.

Sure. Would you look at smaller stores, if you were to go deeper into the -- like a 10,000 square foot store also is okay rather than 30,000 or 40,000 or...

2 [ days ] back also you asked me the same question.

I'm just asking again just to reconfirm?

So 10,000 is fine, Amit. You give me 100 stores in Bombay of 10,000, I'll open all 100, get it, right?

Thank you. The next question is from the line of Richard Liu from JM Financial.

Number one, Navil, if I use the bill cuts data that you provided, and I divide that by the average number of stores that you have in various points in time, what it tells me is that your average footfall per store per day and I'm using average because I don't have further data. So this average per store per day is down from about 2,800-odd in fiscal in 2019 to just about 2,300-odd. So that's about a 17%, 18% decline. You made up for this footfall -- shortfall as your basket value is now much higher. Can you throw some perspective on this kind of behavior, please? Did less number of people visits have any impact on General Merchandise, et cetera, given that there is also an impulsive component to that? And do you expect this behavior of lesser number of visits but higher market size to reverse any time soon?

So Richard, I commented earlier, but I'll come with precise numbers. See, 10 lakh plus towns, the number of stores contribution in financial year '20 was 69%, yes. So we had only 21% stores in 10 lakhs below towns. That has moved to 28%. So a larger chunk of our new store additions have come since [indiscernible] And this number that you commented is simply because of that reason. Smaller towns, lesser footfall. So that's why the blended average has come down. Obviously, notwithstanding that post-COVID average basket values have gone up. So that also has an impact. And that is the way I come back to the same question -- same point of view again, that we [ rank ] our SSGs across all stores, store by store or even by vintage, yes. And from that standpoint, except for the Apparel side or General Merchandise side area, the general footfall, the general revenue of all the other categories are growing robustly well. So no worries there. So again, footfall to the store is not a challenge. But once she's in the store, the ability to convert them to General Merchandise/Apparel has weakened, and we are working on it to make it better. So the belief in the model is there. It's just that we need to get these areas sorted.

And these guys from the non-10 lakh plus towns are also shopping with a higher basket size as in the others?

Sorry.

One reason you gave is that the number of 10 lakh plus town stores are much lower in proportion. My question is that between these 2 periods, obviously, the number of -- the size of the basket has gone up significantly. So since there is a higher component of these smaller pop down, are these guys also shopping with a much higher basket size?

Basket size have relatively gone up across all -- all [indiscernible] towns, but the average basket value in a smaller town is significantly lower than the basket value of a large town.

Which basically means that if I take FY 2019 to be constant, for those cohort of stores that were existing in FY 2019, would the basket size have been significantly higher today than what they used to be, let's say, 3 to 4 years back? Okay. So if I would stretch my imagination a bit further. The other question is that are these guys who are buying more and much more per visit a different set of people than the ones in 2019 and earlier. What I mean is, does your customer cohort also now comprises many more shopkeepers buying a lot of stuff to stock in their stores versus, let's say, end consumers like you, me and our neighbors?

So you're asking whether there's a B2B element in our business. No, not really, Richard, that's what you're alluding to know. Because if that was the case, then FMCG mix of margin would have come down, that's not the case. Our gross margin has come down because of lower contribution in the General Merchandise and Apparel business. And also to a certain extent, we have taken sudden deep cuts in certain categories within this subcategory within this GM and Apparel business. And that's why there has been a deterioration in gross margin. But there has been no deterioration in gross margin in the FMCG side. And hence, no reason to interpret that high basket value is because of B2B. We also tightly control it. You try yourselves, go to any store and try and buy 1 carton of Coca-Cola 2 liters or buy a carton of washing soap and tell me what happens at the cash counter. Quite likely, they'll stop you.

Okay. Got it. And just related to what you mentioned about gross margin, Navil. If I look at earlier times when you had 28% share of revenue from General Merchandise, et cetera, versus now at 23%, your gross margin is not very different, right? And I'm talking about consol gross margin. It was 15% in FY '19, it is still at 15.1% for FY '23. And so how does this happen? Are you earning much higher margin on the balance, 75% of revenue?

I will not comment on consol. If you ask me on the stand-alone, then maybe I'll give it a comment.

[indiscernible] difference. It's 14.7% earlier, now 14.5% for a 5 percentage point change in General Merchandise share.

So what is -- come back to the question, sorry, come again?

What I mean is that your General Merchandise and Apparel share has reduced significantly from -- it used to be 28% earlier and it's 23% now, right? I mean so that's a 5 percentage points reduction, which is pretty significant. But if I look at your gross margin in the stand-alone business, at that time when the share of general merchandise was 28%, it was, I think, 14.7%, if I have my numbers correct. And in FY '23, with a much lower share of general merchandise, you're still earning 14.5% gross margin, right?

Brilliant observation but my sense for that is Richard, I don't have a straight answer for it because during this period, we've been transitioning from direct store delivery for a lot of vendors to DC deliveries and there's been a lot of what should -- blended average of gross margins that we earned have gradually changed across all categories over time. So that's why you're seeing that. And so let me put it simply, both Hindustan Lever gives me 10% gross margin, but he's delivering at my door through a local distributor. Now I go back to room and say, look, I need my delivery at my DC, and I will do the deliveries myself. You get a better -- significantly better margin from these companies, which not only covers the cost of dispatch or managing all that. We also make a couple of few percentage points more. So this was over the last 5 years in the FMCG side, there has been this blended change okay? I hope you're getting what I'm saying. And that's why it's not comparable. So you have -- it's a brilliant observation, great point but the response is this because this is what have happened. And that's why you -- the loss of margin on non-FMCG has been compensated by this going direct on the FMCG side. Got it?

Yes. And do you have any such other tricks up your sleeves to gross margin other than through General Merchandise and Apparel?

It's not a trick. I told you what really happened.

Sorry, wrong use of word. I mean any other such leverage that you may have in the future, which can help you in gross margin?

Not really.

So now the only choice is to get General Merchandise and Apparel up?

Yes.

We have the next question from the line of Varun Singh from ICICI Securities.

My question is on the Apparel side of the business. I understand that you already highlighted about the problem which exists in the people portfolio category management that we need to solve but still, I mean, if you could also -- I mean approach -- I mean the point that you mentioned about not selling lifestyle product, but daily wear products all that taken into account. But still, having said that, lifestyle has a very different aspiration no matter how much down the value we go, I mean even if you take products like innerwear, et cetera. And of course, I mean, all the companies are selling at all high price points. But as you said that I mean, for example, if we look at the visual merchandising or the trial rooms. So I mean it goes beyond just the product that we are selling or the employees who are engaged with the customers. So as Richard was pointing out earlier, regarding more hard selling, et cetera, just wanted to pick your thoughts or understanding on how we are solving for the problem in the apparel over and above [indiscernible] product on getting the product and the price point right. Because, I mean, of course, as we [indiscernible] selling value.

Varun right? Varun?

Yes.

So Varun, we are very clear about one thing that we can't be everything to everybody. We are distinguished and for something, and we'll stick to that positioning. We can't create a very aspirational environment for apparel business when you're already buying groceries and some rice is falling or some ghee is falling there or so things like that. And we don't have very expensive lighting. We don't have expensive crops, we can't do that. So there's a point -- trying to say that we'll try to create a great shopping experience from that standpoint. Nonetheless, wherever there are opportunities to make the basic look and feel better, obviously, we'll make it better. And at the same time, like I said, if you look at it from a business modeling perspective, even if a few percentage contributions go down on apparel, it's okay. I mean there will be other opportunities in the overall scheme of the non-FMCG space that we've still not looked at as the economy grows, if GDP grows at 7%, 8% or 6% per annum, it will constantly throw -- the market will through opportunities for us to sell a lot of stuff that we're not selling today. So I think we have to use that lens and think about, okay, what else can we do there? Rather than just talking about how do I retain my apparel contribution to the overall business. We'll try as much as possible, but there are so many other levers to look at. That's the way we are thinking about the business.

Absolutely. Got your point, I just wanted to kind of understand, I mean, in case you are thinking of scaling down the degree of the business, the category -- I mean of course category you already talked about, but the retail area where -- I mean which we kind of share for this very category given that pharmacy is a new category that you already ventured. So I mean any comments on those lines with regard to the area that you were dedicating for this segment? And going forward, I mean the category that we are looking at? Any thoughts on that? And also if you can comment on how far pharmacy is tracking in the existing stores and scale up as a consequence, how you are thinking about scaling up this category as well?

Pharmacy to comment is too early. Again, we have to open at least a sizable number of locations, and then we'll -- I mean the financial itself will tell you how we are trending there. So that's on pharmacy, but we are pretty confident on pharmacy because we used to run pharmacy -- the pharmacy business earlier. I think on at least 6 to 7 pharmacy stores is what we used to run at one point of time. And then we decided to shut it because we wanted to focus on the brick and mortar business. And so -- but we're very confident that pharmacy will do a decent job. On impact of retail area because of lower performance of certain categories. I've presented again earlier also that the model is very agile, very flexible. We -- it's like a lever block. I mean whatever you want to do, you can do it, if you want to reduce space, we can reduce space. If you want to increase space, you can increase space. The incremental construction cost of the building doesn't impact the viability of the store. So all those levers are available. And depending on case-to-case basis, location, region, we will keep modulating the area, the space or whatever that we want to on the higher side or the lower side. Yes, in a lot of locations, we build more, but we don't open that floor. We wait for some time. We wait for the revenues to come up and then we open those additional spaces. So all those options are available.

Got it, sir. And sir, last question on like the new cities, geographies and that we are kind of venturing how to add stores, like looking at -- like number of cities that we have ventured out in the current financial year. So we have kind of narrowed down our focus more to the existing cities. So I mean, is this because of like relatively lower performance when you are venturing out in the new geography? I understand you mentioned about [indiscernible] store economic strategy equivalent to like all or like system level leverage, but still, like -- I mean also, for example, you had said that you'll be more than happy to open 10,000 square feet of stores given an opportunity. So I mean, looking at these 2 context with regard to the store sizes, which, I mean, of course, we have also 1 more conservative given in recent quarters, we added 30,000, 40,000 square feet. So I just wanted to pick your mind with regards to what is the ideal store size that now we are looking at 40,000 versus 10,000 as well as the new cities that we are choosing to venture out while we are doing all these instruments to [indiscernible].

So if you're alluding to the last quarter, 3 stores that we opened at 30,000, there's just 3 stores. We are still quite confident on opening larger stores, yes. So from that standpoint, there is no issue, yes.

And on the geographical expansion?

Yes, geographical expansion, there's an operating leverage now Varun, that's why we say that we'll open more and more stores in the same cities because you get fantastic operating leverage you know. So that's why we like to do that. But we're also open now to spend a little more and open in cities, which are a little bit away also, right, in new cities. We do that also.

We have the next question from the line of Ashish Kanodia from Citigroup.

Navil, first question is, when I look at the revenue per traffic in FY '19, which was around [indiscernible] FY '23 at around INR 31,000. And if I just look to your earlier comments going into smaller towns where the revenue per square feet is lower, but the cost is also lower. Just is it fair to say that this is the store mix, area mix which you had in FY '19, that was the -- that was the revenue in FY '19. And now in FY '23, when you look at the revenue per square feet fundamentally [indiscernible] more competitive intensity and other stuff. So is it fair to say largely only a concern of your store mix area, mix from a smaller town, largest town perspective?

Ashish I have commented on this before, I'm saying this again that see, for us, it is ROI of the store. We invest in the store and we look at the revenue, look at the gross margin, we look at the cost of running the store, and we see that whether we make a profit. Now for whatever reason in that store for that city, the contributions of General Merchandise and Apparel are different from others or gross margins are different from others. That's part of that city or that market, right? But what is important is ROIC, are we making money in the store or no? [Foreign Language] So from an individual [indiscernible] standpoint and a state standpoint, every state has a very typical behavior. Okay. The gross margins of certain regions are relatively different from other states for whatever reasons, right? It is a fact. Maharashtra gives you a different behavior. South gives you a different behavior, Gujarat gives a different behavior, North of India gives a different behavior. But the point to make is that in the overall scheme of things, are you making money, yes. And then like it typically happens. Certain states allow you to make more money, certain states do not allow you to make that much money from an ROIC perspective. But you -- does that mean that you say if one particular state is giving you a significantly high ROIC, I should drive that in the other state. I'll not try to do it by nudging or doing something out of the national behavior of the customer. We look at -- okay, are there any white spaces? Are there any gaps? What is it that's working well in Maharashtra? Or what is something that is doing well in Karnataka, where we doing well? And can we do that there? Yes, [indiscernible] much. But that is what we do. I mean and like I said, we don't look at revenue per square feet as a metric internal. We don't even evaluate our people on that front.

Sir, please go ahead.

Yes, that's it. I mean as far as fundamentally, gross margin, operating cost, net margin, ROIC, that's it per store.

Sure, sure. Secondly, on the pharmacy, right? So you have done it earlier, so you know the model was right. So from a existing store point, is it how difficult or easy it is to set up within the existing stores? Because when I look at the on-store where you have been trialing the miniMAX, right? It's basically -- there's a separate area being passed out [indiscernible] like the product is very small. So just trying to understand while [indiscernible] in the newer stores, also existing stores. Is it still the latest model given relatively easy to plug and play and scale up.

For the pharmacy business, right?

Yes.

Absolutely. Absolutely. It will be part of its store, yes. There shouldn't be an issue at all.

Okay. Okay. And lastly, I mean just on the General Merchandise and Apparel. So my understanding is when I look at, say, [indiscernible] predominantly or non-general merchandise and apparel business, right? And then when you look at the stand-alone business, almost 3%, 3.5% revenue comes from your -- comes from sales to the e-commerce business. So is that also impacting your general merchandise and apparel mix. I mean if I -- I don't know if the understanding is correct, that is basically from the stand-alone, you are doing some related [indiscernible] your food and nonfood. So there is an impact from that as well. Is that understanding correct?

Partly, but that is inconsequential from the overall impact for gross margin -- I mean General Merchandise and Apparel contribution to business. No. So your interpretation is not correct, inconsequential.

Okay. Okay. Got it. And just lastly, you talked about operating leverage, but you're also getting into maybe [indiscernible] Into far away cities. Now in terms of -- and just trying to understand this, like maybe in existing -- is it relatively easy to get real estate in maybe if you go to a new state versus maybe trying to get a real estate at the existing cities where you already have 3, 4, 5, 6 stores. And if it is relatively easy to get real estate in some of the newer states, will you look into kind of expanding more maybe at a cost of operating leverage?

I think the lower the [indiscernible] easier to get the real estate. That's broadly what our sense is.

The next question is from the line of Manish Poddar from Motilal Oswal AMC.

Two questions. One is [indiscernible] to open 40 stores in a particular year, would you be able to understand how many stores need to [indiscernible] final cost?

Manish, sorry, your line is slightly unclear. You said -- what does it take for 40 stores, we couldn't follow you?

[Operator Instructions].

Yes, sorry. So I'm just trying to understand, if you have to open 40 stores in a particular year, how many stores need to be vetted and how big is the team who takes the final call of taking the property?

So it's a multiplier. It's not like okay, [Foreign Language] it's more of a multiplier. For example, for every 100 probably somebody shortlist 50 goes to the next level and another 25 go to the next level. Then eventually, you may end up only -- the sale deed may happen only for 10. It's like that.

10% is the conversion...

Sorry?

So conversion rate is roughly 10%. Is that how it is?

No, I'm not telling you that. I can't give you a clear number there. But I'm saying the initial [indiscernible] to final closure is a humongous effort. It's long -- I mean it goes through 3, 4 stages, so it's a long effort.

And how big is the team who takes the final cost? Because from my checks, it suggests it's very closely.

Big enough to open 40 stores at least.