V-Mart Retail Limited (VMART.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to V-Mart Retail Limited Q2 FY '26 Earnings Call hosted by B&K Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Parin Tanna. Thank you, and over to you, ma'am.

Good afternoon, everyone. Welcome, everyone, for the call of V-Mart 2Q earnings. We have Mr. Lalit Agarwal, the Chairman and Managing Director of the company; and we also have Mr. Anand Agarwal, the CFO of the company. Without delaying it further, we will request Mr. Lalit Agarwal to give us initial comments about the company's performance and outlook for the company going forward. Over to you, sir.

Thank you, Parin. Good afternoon, everyone. The things looks quite busy at our end. The festival has just gone by. We have -- we have almost covered half of Q3. But yes, for the last quarter or from the last quarter till now, we definitely are seeing a lot of enthusiasm in the market, a lot of enthusiasm getting driven by -- by the government also this year, especially with respect to consumer even and with respect to consumer increment, especially because the GST rate reduction which happened. So the government was very particular in terms of the GST rollout, the way the consumers have being communicated about the benefits, the way the stores are being prepared on those. So a lot of work happened on the GST side. Largely as I would say, looking at the consumer side, especially the consumers who are relatively the consumer which the Bharat consumer is mostly at Q2, that consumer is being developed more focus [indiscernible]. That -- that we see. There is lot of [indiscernible] happen. All the rollercoaster [indiscernible] there because the announcement happened in the first week of September, the implementation happened around 20th of September. So all of that created some kind of -- some kind of wait and watch as well as for the consumer. But we did not see a lot of those impact. GST rollout benefit was not to greatly visualized lower ticket size item, but yes, we did see some of the benefit coming in the higher ticket size items like a car or a bike or [indiscernible]. Overall, inflation is under control, which definitely gives a much better confidence level to the consumer. It also has created some kind of savings for the consumer, so that part looks good for the futuristic perspective. The consumer will definitely save both from inflation as well as whatever GST reduction, rate reduction, which will happen. So a lot of GST reduction has happened in FMCG also in higher priced apparel and footwear. So all of those benefits should impact come in the later period what we believe and that should always be there. Other than that, I think there is definitely lot of good things happening in the industrial side, lot of good things happening in the business market. We are increasing some industries that will develop even in the -- in our state which is Uttar Pradesh or we see lot of which [indiscernible] coming in the [indiscernible] business in the state of Tamil Nadu, even in the state of Karnataka, but largely we did see some good benefit also coming out of it. Definitely the benefit, whatever we're approving the market is also getting [indiscernible] or getting consumed by other retailers I think. And there is a good level of competition [indiscernible] retailers which is also open up the door, which continue to happen and which is also a good [indiscernible] and everybody related [indiscernible] good results. So that has really given both the -- it has become [indiscernible] from the share of [indiscernible] also gone up. The people have started opting both [indiscernible] detail and the share which there is also getting share amongst the retailers, both the [indiscernible]. Definitely the seasonality --on the seasonality side, [indiscernible] did not was [indiscernible]. There were some disrupted seasonality because of excess rain [indiscernible] or multiple rainy cycles during the festival period. So some of those activities or [indiscernible] activities in the coastal belt and Southern belt, are the -- the Pujo market which is based on market did create an impact in the overall festival details in the industry that did some impact for the peak week of Pujo. But otherwise I think it looks good now. It definitely we see a better prospective of season now which is the onset of winter. Winter has onset at the right time. We did some impact in the Diwali but Diwali was largely a summer Diwali this year because Diwali was -- at the date level it was the earliest Diwali that we could have. Once again in next year, you will see Diwali coming down in November, November also [indiscernible]. So, Diwali at this time, generally, we see a lot of summer related product or even the basic related products selling more, which reduces the average selling price of the product and then that we see. But yes immediately after Diwali we saw some [indiscernible] coming in and we saw immediate shift of the consumer from that product [indiscernible] the [indiscernible] and which is what we also wanted and which is what we also look forward to. Because technically this has benefited also with better [indiscernible] number of days so basically because Diwali early we get higher number of days duration [indiscernible]. So that also is a benefit to the retail industry. Overall India do consume during marriages season. So we believe both Diwali as well as winter should, sorry, the marriage as well as winter should help us to get a little winter sale in this kind of products. We are expecting the better November than from an October perspective. Overall Diwali was good, not great as per our expectation. We still feel that we could have done 4%, 5% better but yes it was positive Diwali for us. There was growth but not the great growth. We do believe that post Diwali should be a better period for us. That is what we see expect, last, definitely last quarter we saw Durga Puja coming early so some of the place of Durga Puja which is largely in the eastern region or the eastern belt of India and some part of Southern belt of India. They, normally company within Durga Puja before Dussehra or [indiscernible]. So that is the period when we see lot of sales that we accumulated in the Q2 period sales that is why we were able to see it from good like-for-like growth which is almost [indiscernible] 11%, which we reported. And lot of other retailers have also reported because people who have the higher footprint, stronger footprint in the Eastern belt would report a little better Q2, versus the Q3, and for us there is definitely a share of Eastern or Southern [indiscernible] business, but we also have a equally bigger share of Diwali sales, which [indiscernible] in Q3. So some part of the sale is definitely effected, some part of the sale will get effected for Q3 as well. So we will see [indiscernible]. Otherwise, overall, I think the organization keeps continuing their focus on the long-term growth aspects, both on scalability, efficiency for the areas of growth that we can drive, [indiscernible] what are the areas [indiscernible]. So we are really working very hard on, or trying to work more harder on the product sharpness, the pricing, quality, designs, [indiscernible] more technological advancement in terms of supply chain management, agility in the warehouse [indiscernible] agility. Some of these things have really come out well. Some of these things are struggling as well. There is definitely -- we see a little high pressure on the [indiscernible] network. We do see some kind of stress also there because of higher number of store openings by value retailers.  So a lot of value retailers also are trying to chase similar kind of vendors. So there is definitely some pressure that we are able to [indiscernible] Otherwise, I think there is definitely better work happening towards all parts of the business, all areas of our processes. We are looking at a lot of AI introduction. We are looking at lot of technology-driven building blocks, which will -- which will further enhance our productivity efficiency as well as the accuracy in terms of during the personalization or relevant merchandise by relevant customers [indiscernible] as diverse area do demand multiple kind [indiscernible] at different times. So that is the base of our growth parameter and that is where we are working hard so that we become more analytical, we become a little more agile, we become a little more automated, and we become a little more efficient, so as to understand the consumer needs, so as to understand and service the consumer [indiscernible]  little better. We continue to penetrate in Southern India.  Southern India is giving a good response [indiscernible] good response. State of Telangana and State of Andhra Pradesh continue to struggle as of now. We have not seen a lot of great growth on those two states, but State of Tamil Nadu [indiscernible] has given us a real good [indiscernible] for us to penetrate a little more strongly that particular state and that area -- area [indiscernible]. But yes, overall, there is definitely a lot of pressure in the business. We do believe that both in terms of building efficiency as well as building the future potential [indiscernible] teams members are getting into, they are definitely getting into both futuristic plans, futuristic project works, which they are focusing on and also the current need of the business and also fulfilling the current challenges or taking care of the competition, which is also coming. So there is also a higher level of focus on building profitability.  We have definitely succeeded in attracting consumers given the size of our lower marketing spend or marketing reach. We have focused highly on the digital advertising in terms of micro organizing [indiscernible]. So that part is really giving us some benefits. We definitely -- our continued focus on [indiscernible] we still want to clearly focus largely on the omni orders and should get a lot of our omni orders, and store-led omni orders into prepaid orders which has also given us a lot of benefit in terms [indiscernible] and consumers are easily adopting all of that. And that is good news [indiscernible] consumers in terms of [indiscernible]. So some of those pieces have really given us a good competitive advantage [indiscernible]  Overall, I think our focus is largely to look at our expansion. As we continue to expand, we are trying to accelerate on our expansion rate also. [indiscernible] So we will still look forward to continued expansions, not be very aggressive, but be very mindful of our aggression and be mindful of our profitability even from the future stores, which has been a good news. Most of the stores that we have opened up in this particular year or last year are delivering better EBITDA, are delivering better growth and are delivering better [indiscernible] compared to the [indiscernible]. So a lot of work is happening [indiscernible]. So these are the areas I think we will definitely want to maintain the growth path, both from like-for-like as well as the new store keeping in mind inventory level, which [indiscernible]  become little more better. The inventory at the store looks a little more pressured, much more pressured compared to last year. So that should also benefit and our focus is also to try and increase the pressure, increase the [indiscernible] is again our focus area that we will continue to focus on. I'll hand it over to Anand to proceed through the quarterly numbers and then we will [indiscernible] for questions. Thank you.

Thank you, Lalit, and good afternoon, everybody. Let me very briefly take you through some of the key operational highlights from the quarter, and then we can open the session for questions. I'll try to keep my comments very brief so that we get more time for questions this time. So quarter two has been a good growth quarter with highest ever quarterly new store additions as well as good like-to-like same-store sales growth leading from the [indiscernible] we delivered a total growth of 22%, also opened 25 new stores and also delivered LTL growth of 11% with both V-Mart and Unlimited territories clocking similar 11% number.  Although an early Durga Puja was negatively impacted by significant unseasonal rains in core Puja markets and GST transitory impact also remain, but I think at an overall level, we still delivered a good growth on all the fronts. On the new store opening, while we added 40 stores in first half of the year, we have further added 16 stores in the current quarter in the month of October and in the last 10 days of November with a net store tally today of 549 stores as on date. So as Lalit also mentioned, for the full year, we are marginally increasing our guidance for new store openings to 75 stores by the end of the financial year.  On Unlimited, I think Unlimited has been a very good strong growth story for the last couple of quarters, and we remain very bullish on expanding our presence in South with more new stores additions going forward in the Southern territory. Coming to margins. The gross margins remained flat at 32.6% despite the 37% decrease in commission revenue from the LimeRoad marketplace business, which otherwise contributes 1% to the overall sales, but flows through 100% into gross margins. So for the offline business, actually, the margins slightly improved. That was largely due to better-than-planned liquidation or better realizations on the end of season sales. Excluding the LimeRoad commission income, the gross margin improved by 0.6% year-on-year for the offline business.  On a full year basis, the gross margins from offline business should remain similar to last year as we continue to drive giving higher value to consumers and focusing on growth through volumes. While the LimeRoad commission income contribution mix would slightly reduce, optically reducing gross margin versus last year on a total basis. Coming to expenses. The total expenses increased 11%, largely led by planned significant drop in expenses in the LimeRoad vertical and lower offline marketing spend as we continue to drive loyalty-based traffic to stores through digital interventions. The Google rating for all our stores contributed individually by lakhs of customers at store level remains above 4.8 out of 5, while the NPS remains significantly above 75%, ensuring more than 70% loyal customer repeat sales. As a result for the offline business, EBITDA for the quarter came in at a strong 8.9% with V-Mart at 9.3% and Unlimited at 9.9%. The pre-Ind AS EBITDA for the quarter also came in at a positive 1% against a loss of 3% in last year. On the CapEx side, we spent INR 30 crores in the quarter, which was majorly towards CapEx on new store openings and some old store refurbishments. Inventory increased by roughly around INR 220 crores quarter-on-quarter as we upstocked for the festive season, which was earlier than last year. Irrespective, the days of inventory has improved by two days year-on-year on the back of better sales and throughput. At an overall level, inventory remains very healthy, much more fresher, and we look forward to a good winter season going ahead. Overall, the business generated free cash flows of INR 27 crores YTD versus negative INR 63 crores in last year. I think that is all from my side, and I will now request Parin to open the house for questions.

[Operator Instructions] The first question comes from the line of Tejash Shah from Avendus Spark Institutional Equities.

First question, Lalit [indiscernible] pertains to the consumer sentiment, which you spoke in detail, but I'm slightly -- I'm not clear. Just because when I look at your store expansion data, it tells me that we are very confident on the demand side. Actually I would say considering that there was a Puja preponement [indiscernible] slightly neutral [indiscernible]. And your commentary was -- your opening remarks was slightly, I would say, on conservative side, not very [indiscernible]. So just wanted to understand because there are too many things muffled in this quarter because of rains and Puja and GST led disruptions. What are your -- like not for this quarter only, but how are you seeing the rest of the year? And all those interventions that the government has made, are we seeing any visible very change in terms of footfall transaction consumer sentiments? p id="49587215" name="Lalit Agarwal" type="E" /> [indiscernible] See definitely, as I said, I meant that I'm conservative there, I'm saying that we expected a lot. We did not get a lot of such outcome post the GST implement. So there's nothing very different which happened, especially in terms of GST, people did not demand that, people did not ask for that, people --didn't not make too much of difference for the people. As far as the GST for our end [indiscernible]. So, that, that is what I said, but yes, largely, we do see -- I mean definitely, as I said, Diwali was also little summer Diwali, the data did not show us too much, but immediately post that, now we are seeing a good healthy, we are expecting also that these two months should be a very good growth of footfall which should happen and we are expecting all of those savings, which is getting accrued by all -- whether inflationary rate getting neutralized or even those GST rates getting lower. So all of those should get consumed and people should come out to consume a little more. Definitely, the economical conditions for people looks to be better comparatively [indiscernible] comparatively year-on-year, quarter-on-quarter, it looks to be a little better. People are little more confident in spending, and they should spend is what I expect.

Sir, second question pertains to competitive intensity among your peer set. If we have to double down on the cohort wise, so it could be that some of your cohorts, your competition is over-indexed and that competition -- that cohort is actually doing very well for you as well. But at overall level, perhaps that is not coming. So just wanted some insights on competitive intensity and if you can kind of layer it up with some reasonable nuances as well. p id="49587215" name="Lalit Agarwal" type="E" /> No, I think, see it continues. I would just say call out that competition intensity continues. Number of stores, new store opening of competitor altogether also as a percentage of the doors continues to be there. There are competitors who are aggressive. There are competitors who are doing good in certain new stores. There are competition who still don't know certain territories, certain zones. So they may be struggling. But yes, overall it's a mixed response. We do find some kind of [indiscernible] some kind of impact coming in may be 30% to 35% of the stores, their competitor open up and there is some months or two months disturbance which also get created in terms of second growth rate getting utilized or certain [indiscernible] particular store. But for particular period of time happens [indiscernible]. We haven't seen that there is very aggrieve in any territory, but we are seeing across India now. Southern territory looks a little lesser in terms of competition but there is another player on the block which is coming out, which is a timely [indiscernible] in competitor, which is also trying to open up multiple stores. So there are there [indiscernible] but now this is also another [indiscernible] which is coming for. So there is different kind of competition at a territory level which I said. There is a more national player such as Southern [indiscernible] and all of these due to [indiscernible] in the Eastern side and [indiscernible]. There are more very, very [indiscernible] in the Northern and [indiscernible]. Northern looks very tough for most of the competitor that is there. We come on a little better position is what we see. p id="114398810" name="Tejash Shah" type="A" /> Okay. And if I may squeeze in last one. Unlimited seems to be doing fairly well now. So has the model stabilized and can we kind of double down here in terms of rapid store expansion?

We have a plan there. We just don't want to go everything left, right and center because the property prices are not too attractive there. So you have to really select them. So that is very profitable. So that is where we are trying to see our customer segment and we are focusing especially in a couple of states. We have our increased thought process of increased penetration that we want to get into. But yes, it has been spread out very well.

The next question comes from the line of Sameer Gupta from India Infoline.

Firstly sir, on the gross margin, even if I exclude LimeRoad, and I know you mentioned this for this quarter particularly, but now we have seen a four quarter run rate of gross margin, excluding LimeRoad on an average expanding by 100 basis points. But our commentary always has been to pass on more value to consumers and this margin might see some compression, but that has not happened so far. And you did mention in this call also. So just wanted to get a tap on what exactly is happening? Also, I see ASP going up by 5%, but probably that's due to the early festive, your comment on that.

So see, I mean, definitely, our focus is on both the lines as I have been always speaking out that we have got enough focus on the whole design, sourcing, integration of fabric wherein we definitely want to pass on better value to the consumer. We have tried to do that. You will not see too much [indiscernible] that we have got. So we are giving more value to the consumer. We are also, in the meantime, trying to attract a fair margin. We don't want to just go out and give out at very low price or at very low deals. But yes, we also -- you can also see there's some change in mix of the business. Our lower margin product line, like FMCG, our share of business has reduced there.  So that also is the cause of better gross margin is visible to you. So one is that. Two, on the second side, the whole as the freshness of the organization has increased, the provision over the inventory also has been little lower [indiscernible].

So I think as Lalit mentioned, we should be able to -- while the objective is to create more value for the customer, and that will always remain the paramount objective, but with the projects that we have been undertaking for the last couple of years and the benefits that we have already started to accrue in terms of better pricing, sharper mix, better quality and better designs, we are still able to deliver a good value for the customer without compromising so much on the pricing or the margins. So it's a balanced strategy, but we are not just saying that we will just reduce margins for the sake of reducing. We will look at the right approach where we are able to deliver the right value for the different set of geographical and regional customers in different areas. 

Got it. Got it, sir. That's very, very clear. Second question on similar lines. So pre-Ind AS EBITDA margin, if I exclude LimeRoad for the first half is at around 4.4%. Typically, second half is higher, but this is also an early festive year. So in your estimate, given the demand conditions and the clarity on gross margin plus the competitive intensity, where do you think this number should settle at? Typically, with decent SSG and no pressure on gross margin, I would assume that it should be close to 6%, but your thoughts on that. 

So Sameer, I think it's slightly premature to give a number. But what I can definitely say is on a full year basis, over last year, even with mid-single-digit same-store sales growth. If we get much higher sales growth or much higher same-store sales growth, obviously, the operating leverage will come in, and we should be able to deliver the number that you are talking about. But definitely, as of now, we are still looking at improvement over last year on a full year basis. 

Got it, sir. But only marginal improvement you're saying, I mean, with a mid-single-digit SSG? 

So I can't commit any number right now, Sameer, because it's a function of many, many different factors. But obviously, we are trying for the best. But the number that you are stating is slightly above what I have in my mind, but I really can't comment on a specific number. 

Got it, sir. Last question, if I may squeeze in, more of a bookkeeping one. So I mean Tejash also mentioned too many moving parts this quarter. But on a normalized basis, in your estimate, what would be the same-store sales growth if you adjust for early festive and other disruptions like excess rainfall and there were some disruptions in the Northeast as well? 

So you're trying to ask for the first half normalized SSG going forward? 

The particular quarter gone by, but yes, first half will also do. 

First half, the SSG is 5%. That's what we put up also in the IR deck. Going forward, we are still hopeful of a mid-to high single digits for the full year. A lot will depend on how the quarter three pans out, especially the winter season in the next two months.

 Anand, maybe I'll rephrase the question. So I mean, the first quarter was also kind of impacted because of Eid mismatch and second quarter also because of the early festive and all. So in your estimate, if you could give a number on a normalized SSG in your estimate, that would be helpful. That has happened. 

So I think from what I'm able to understand, I think that number still is 5% for the period gone by. 

The next question comes from the line of Deep Shah from Equirus Securities. 

Just one question from my side. See, in the opening remarks, Lalit mentioned that inventory freshness has been better. But if I'm not wrong, in the fourth quarter earnings call, we mentioned that the winter -- discounted winter inventory liquidation was not that great because winter was not that [indiscernible] great last time. Am I right if I were to take that during the second half of the year, considering the discounted liquidation will be higher, there will be some pressure on the gross margin during the second half? Am I right if I... 

Shouldn't we -- looking at the weather forecast this year, we do believe we should be able to retain good margins even in the leftover inventory if the season continues and season goes well as for the [indiscernible] forecasted. So we are hopeful that we may not lose too much margin there. 

The next question comes from the line of Harsh from Lupin Capital. 

So if I just could get a sense, I heard Anand sir saying that the SSG for three quarter is expected to be slightly on the softer side, which is low single digit. And we are expecting a mid- to high single-digit SSG for the whole year. So that means the second half or the fourth quarter has to be really huge for us. So is there -- do we still maintain that guidance in terms of our revenue growth and SSG? That's the first question. And secondly, on the ESP front... 

Harsh, I think while I did not say that we have had a softer SSG in the first half, but what I did say is that for the full year, the guidance that we still maintain is that we will still be looking at mid- to high single digit for the entire year. Now how much of that will break out into because if you look at the first half, it has been 5%. So which means if you have to maintain a mid-single digit, then it would still remain 5% for the second half as well, which should be practically be achievable in the normal scheme of things. If we get slightly better SSG, I think we should -- we will be able to look at even better profitability than what we have assumed. 

No. So my question was more from the 3Q perspective. I believe in the opening remarks it was being said that the SSG for 3Q is expected to be in low single digit. Was that understanding correct or...

It should be somewhere in the mid because the way we have reported in the first half. We are expecting a similar kind of SSG, which should be maintained even in the Q3 period as the festival has also shifted into Q2. 

Understood. And lastly, we have seen an ASP improvement of 7% within the V-Mart category, which is our core business category. How much of it would be in terms of any price hike that we have taken or how much of it is because of the festive and a higher ASP mix coming in? 

No, I think it is largely because of the mix as well because the festive is little early. So as soon as the festive comes in, normally what happens, your little end of season sales timing get reduced, your festival starts a little earlier. So we have full price sell-through as well as the festival do attract a little higher ASP product line getting [indiscernible]. So some of these pieces are getting factored in.