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

Ladies and gentlemen, good day, and welcome to V-Mart Retail Limited Q4 FY '20 and FY '20 Results Conference call hosted by ICICI Securities. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Dharmesh Shah. Thank you, and over to you, sir.

Thank you, Lisa. Hello, everyone, and thank you for joining to the Q4 FY '20 Earnings Call of V-Mart Retail Limited. On behalf of ICICI Securities, I would like to welcome the management team of V-Mart Retail Limited to discuss the result and the outlook. We have with us Mr. Lalit Agarwal, Chairman and Managing Director of the company; and Mr. Anand Agarwal, CFO of the company. I would now request Lalitji for his opening remarks, post which, we can open the floor for Q&A. Over to you, sir.

Hi. Good afternoon, everyone. Thank you, Dharmesh. And thank you, everyone, for being here. Once again, we've ended this year quite on a challenging note doing lot of work during the year and post the year has been more challenging now. So we are all aware about the COVID situation. We are all aware about what has gone into businesses, during these times. So overall, the industry and the overall environment right now is under lot of fear, is under lot of stress, is under lot of conservativeness and is under lot of kind of what I would say quarantine, which is every individual is right now trying to beat that mode, mentally also, only physically but also mentally. So people are -- if what you're seeing in the market, the consumption story, obviously, once it opens up, we'll be able to know. But right now, the farmer income has been stable is what we hear. Farmer has been on the track, on the field, growing his crops the way he used to. And he has not -- somewhere not been able to -- or did not had any dent on his income levels. So somewhere, the farmer is going to be a little more beneficiary in the overall scheme because the government has been favoring him. The employee or the labor cost will go down because we will have more people available for work in those villages, in those areas. Some of his cost can also go down because there is a lot of reduction or deflation in the commodity prices. So overall, as far his outcome or his crop, he's not selling at a lower price. He'll selling -- able to sell them at a higher price and the government is helping and really building a very good supply chain system so that there is crops benefit there. So that part we see is very, very positive. And as you know, India is largely agri-dependent economy. And our territory, where we operate, largely these district level or the semi-rural population, I mean, these areas are also highly dependent on agricultural income. And most of the people who are dependent on agri are not directly doing agri but dependent on agri or, as I say, greater dependent on the agri, can come back little faster. And otherwise, I think the other front of that particular size of agriculture where we work, the other front is self-employed people who generally are either businessman or shopkeepers or contractors or small factories or ordinary in terms of small establishment, with some smaller entrepreneurs. They are right now under tremendous stress, and we have seen all sorts of activities in those areas. People are driving out some of their resources. People are either not paying them or paying very, very less in terms of their regular monthly outgo. So overall, economy for them is going to get impacted and that the income for those people is going to get impacted for some period of time. There was a third angle, which is the migrant labor. So the migrant labor moving down to those areas, where we have more stores, Bihar, Uttar Pradesh, Jharkhand, Orissa, Bengal, these are the states where migrant labor is highly from. And these are the places where migrant laborers have returned back or are returning back. So lot of income for those kind of migrant labor who used to send money to their families for their consumption and their regular foods and aspirational needs can go down, and there's a strong fear that this can go down. But we have on the other side, because they are in just those geographies, they will work and they will create something better. So their ability to consume in those territories will go up, but yes, overall the economic position is going to be certainly let down for some period of time, till the time they go back to their original location. And apart from that, I think the industry-wise, we have seen the same phenomena. Most of the essential retailers have been able to manage somewhere in opening up, during certain days in April and month in May. There's lot of them who started doing home delivery, tying up with smaller online players like Zomato, Swiggy, Flipkart, and doing their online deliveries also for essentials. And lot of activities happened and also the retailers were there on the toes, regularly coordinating between themselves and doing businesses and helping the community. Apart from that, I think a lot of retailers are definitely facing lot of difficulty, challenges and are -- have really suffered the lockdown situation and has gone out of cash or has gone out of potential to pay their people or pay their employees. So I think there will be some stress which will come in and which can be a factor and which can be seen in the industry. And -- but yes, they also have an opportunity who want to defer the payment because they don't have any money. So I think we are listening to all kind of things, as V-Mart be it tied up or integrated with all the retailers, work down all the retailer bodies, worked definitely with the government and establishment to try and see that we have the minimum impact coming out from the lockdown. And we have the minimum impact going for the employee also, because what we understood that the employee is going to be the key people who are going to suffer here. And how do we protect them? How do we protect and take care of them, was definitely the one thing that we wanted to do. And we wanted to also ensure that the industry takes the same approach and same view. So we -- at V-Mart, we were definitely very, very conscious on employees. We said that we will not drive out employees because we felt that they are our core assets, and they are the people who have built the industry and built the company. So they are the ones who will remain. And maybe something is required we will ask them to share as a family. But we have definitely paid them for the March. We have paid them for April. And this month also we will definitely pay them, but maybe there will be some deferment or some reduction, which is still happening during this time. So I think on the other side, we have definitely tried to ensure that our books are in control. Our risks are managed well. Our ability to understand the risk, through the scenario building, and leader planning and understand what kind of risks do we hold and the risks are the inability to liquidity and inventory. And how do we ensure that we are liquid? How do we ensure that the flow of funds for whenever, whatever we require? And how do we ensure that the inventory will be in control and how do we ensure that the commitments are in control and the vendors are also safeguarded? So we did lot of exercise, lot of work, lot of planning, and lot of communication with all our stakeholders, right from our employees, customers, stakeholders, vendors, government, with the landlords, with investors. So everyone we tried to communicate multiple number of times, so that everyone is appraised about the situation. And everyone is in the partnership, and they're all handling each other so that we sail through this crisis. And that's what the call that we took. We managed our liquidity. We expect a very, very conservative approach on our inventory. We have really worked with our vendor base so that we don't have any commitment going forward. We have minimal commitment going forward. And how do we -- we have taken sufficient provision also in our books, so that we are well covered in case of any more decision to which can they come back, because right now, the corona situation doesn't seem to be improving. It is actually going little worse. But yes, the economy is opening up. People are -- business is opening up. We don't know what is going to happen. So we have taken all those consideration into our business plan and have planned accordingly. So we will continue to look positive. We will try to at this time clean up the inefficient either stores or categories or products or people. So we'll try to do all those work. We'll try to make our processes little more stronger during the lockdown period, during the work-from-home concept, work that we did. We really focused highly on building the company, building the processes, better processes, aligning the technologies, making -- creating capability and in creating more communication and more collaboration digitally. So we have done lot of those work, which have definitely make our brand a much more stronger brand and much more sustainable brand. So that's where we were focusing on, and that is what we feel we'll take the organization to the next level. We're really positive. We will try to act at very, very positive because we understand that the area where we are, we are one of the areas where most of the consumers who have moved away from us to a brand or into a higher income -- the higher product, highest prices procurement, they will come down to us. We are the ones who can cater to the existing market. And we believe that even the market which used to come to us will buy at a price -- will buy products, but will buy at a little lesser price. Today is a concept of live for -- live with less and people will live with less. And also we will have to live with less. So that is the whole concept that we are working on, where we believe that the customers are going to spend a little lesser. Customers are only going to spend on the key product -- different products that they want to spend on, like the kid wear, or infant wear initially, and then the womenswear and the menswear afterwards. So there are going to be lesser events, lesser marriage festivals, lesser celebrations which are going to happen. So a lot of maybe product which are premium products -- products which are higher priced products will not sell. So we'll definitely try to bring on our -- bring down our average selling price. And this is what we are seeing from whatever stores that we have opened up. We are seeing a little lower price point or getting fixed up and then customers want to buy more. Customers are trying to buy the required products because we all know, the customer who buys from V-Mart are customers who only are buying their VD requirement. So they are all VD based, need-based buying. Nothing is aspirational. Nothing is discretionary. So buying will continue -- should continue. We'll see some fall in the average selling price [indiscernible]. So we'll take your questions in the call. And let me pass this on to Anand who can give you a little more detail about the presentation and little more detail about what we're doing. Thank you. Over to you, Anand.

Thank you, Lalit. It's been a tough time. And while the thing is, it's also being very exciting last 3 months. And we all lived to -- learn to live with less. In our ecosystem, less has always been more, and we are happy yet again to share the growth story with all. So I'll keep my thoughts very limited, very short so that they can have more time for questions, but I just want to cover 2 important aspects. One is some highlights from the quarter. And second is, how is our preparedness on the COVID front. So as far as the quarter is concerned and the results are concerned, we had a strong quarter performance till almost end of March. The sales were growing at 29% year-on-year with a 8% like-for-like growth for the quarter, when the stores started to get shut down. With almost INR 75 crores of sales loss in March, the quarter actually ended with a minus 3% degrowth and a minus 18% same-store sales growth. This further impacted the full year tally with over -- with sales growth, which was running at 21%, which faltered to 16% and the SSG, which was earlier running at 3.2% till 15th of March, finally settled to degrow at minus 2% on a full year basis. Despite this, the core market of UP continued its strong performance and despite the pandemic delivered a plus 1% SSG. During the quarter, we added 9 new stores, while 5 locations, which were to be opened during the quarter, had to be put on hold in lieu of the pandemic. UP crossed its milestone of opening the 100 stores. And while the total retail area grew by 23%, the additions in quarter 4 could not really contribute significantly to the top line, increasing the rental costs as a percentage of total sales, and otherwise, just remaining soft to flat. The ASP has been growing heavily, 7% for the quarter, 5% for the full year, in line with our strategy to push higher price product mix during festivals and also reducing discounting throughout the year. As far as margins were concerned, gross margins for the quarter reduced by 50 basis points, largely due to an ad hoc provision, as Lalit also just mentioned, which we took against inventory to protect ourselves against the expected margin loss in future months. While we are really not expecting any inventory losses, but it is better to err on the side of caution. And therefore, we provided for the significant amount in this quarter, so that we are able to take care of eventualities in case any arise. On a normalized basis, in quarter 4, gross margins would have been higher by 30 basis points. The full year gross margins remains flat at 32.2% despite the conservative higher provisioning against the inventory. Without the ad hoc inventory provisioning, the normalized full year margins would have been higher by 50 basis points to 32.7%. If I look at the expenses, they have remained fairly under -- in range. There is some hard increase in manpower costs and rentals as a percentage due to the base sales not being there in quarter 4, while the full salary cost and the full rental cost has been accounted for and actually paid also. We have paid full salaries to all our employees till April and some credit deferments are planned from May. We have also paid the full rentals up to March as they are paid in advance. And we are negotiating with all our partners, all our landlords to waive off rentals for the full lockdown period and reduce rentals further for at least the next 3 to 6 months. We've already been successful in getting this endorsed by almost 1/3 of our landlords, while we still talk to the rest. On a normalized level, as far as EBITDA is concerned, we were expecting an EBITDA of around 9.2%. We've also taken a liberty of adding one more slide in this quarter's presentation for a normalized scale of operations in light of the COVID situation. And one would see that, we were expecting a normalized EBITDA of around 9.2%, which got severely impacted in the last 15, 20 days of March, due to COVID eroding the margins, while the fixed cost remained in play. Coming to inventory. While we have a slightly larger-than-expected inventory due to the loss of sales of roughly around INR 75 crores in March, we had received majority of our summer purchases till 15th March. But the liquidation thereof could not happen leading to slight high inventory as of year-end. The bulk of the inventory that we hold is of the core category and not seasonal. And therefore, we do not really foresee any major problem in its liquidation. In spite of this, on a conservative side, we've taken an ad hoc provision of almost 0.5% of sales to take care of any unforeseen issues going forward. This is not only towards risk mitigation but also being slightly conservative in how we look at accounting and how we look at preserving the long-term stakeholder value. Without this ad hoc provision, our EBITDA would have been higher by 0.5%. On the CapEx side, we opened a total of 55 stores in the year, 9 in quarter 4. While 55 is the highest in any year so far, but we could not open 5 almost ready stores in Q4 due to the COVID situation. The total CapEx stood at INR 55 crores. That was the cash outflow. In addition, we also put some assets on lease for warehouse capacity buildup and some store fit-outs saving on cash, which was in the tune of approximately INR 7 crore. So at a gross level, the total CapEx would have been INR 62 crores out of the INR 55 crores was paid from the company and INR 7 crores through lease expansion. We had earlier announced our plans to open a new warehouse in the eastern part of India, and site for the same was also shortlisted. However, as of now, the project is deferred and a fresh decision will be made in a few months' time. There is no agreement signed or any financial commitment for the same so far. On the cash front, we generated free cash flows of roughly INR 32 crores in a very tough operating environment. Even now the biggest priority for us is to sustain cash. The company was debt free as of 31st March. And had the pandemic not broken even -- broken out, we would have had comfortable cash as in the prior many years. There is a big impact of Ind AS, like in the last 3 quarters, which the company had to adopt since this fiscal, which has resulted in a net PBT impact of INR 31 crores for the year. As you would know, the Ind AS change has required us to break and reclassify rentals into interest cost and depreciation. While the full value of the rental contracts are capitalized and then depreciated on straight line method, a corresponding interest charge is accrued on the outstanding net liability for the right of use asset, resulting in a notional interest cost, which is only a book entry, while there is no change in the rental payout or any part of operations. So there's a net INR 31 crores impact, which otherwise, on a comparable basis, would not have happened. Coming to the second part of my thoughts around the updates around COVID. The impact of COVID has been quite severe so far as almost all stores were shut down for a continuous period of almost 50 to 60 days. We've seen these stores started opening slowly now in the last 10, 15 days, but with limited footfalls. While almost 70% stores have got permission to open from the local administrations, but on an average, roughly 50% are open on any given day due to the limitations on number of days of operations and the hours, et cetera. The last 2 weeks of limited operations have shown that the customers still are there in the market. We've seen almost 40%, 50% of sales for the equivalent amount of time that the stores have remained open versus the normal period. But at an overall level, the sales and footfall remain low. On the cost control side and the expenses, we've taken immense measures to keep fixed costs under check. The biggest component of costs are salaries and rentals. While we've been paying 100% so far, but for May, we've introduced various pay cuts or deferments, which will continue for some time or till the time situation normalizes. As discussed earlier, we've seen an active negotiations with all our landlords, and a lot of them have already agreed for waivers and rent reductions going forward. We expect rental cost for the lockdown period to still be at around 30% of the normal payouts, even for the lockdown period. The electricity expenses have been negligible as few states announced no fixed charges for the lockdown period. There is definitely a complete embargo on all discretionary spends. And the end focus is to reduce our fixed cost base by 50% to 60%. And we are very much near where we wanted to reach. In addition, we are also reassessing the continuity of some of our historically bottom performing stores, and we will swap them with more attractive locations, should any location become available in nearby towns. Liquidity is of prime importance and prime concern. So while the company was marginally cash positive as of 31st March, but we also had roughly INR 150 crores of working capital limits, which were completely undrawn. As an annual cycle, we had recently got our credit ratings reaffirmed to AA minus for long term and A1+ for short term and had also got our sanctioned limits increased by almost 50%, thus roughly INR 230 crores is available to us as banking lines, out of which, so far, we have utilized only 15%. As per the RBI recommendations to banks, we also have access to additional 10% COVID lines over and above this, should the need arise. We've been making small but regular payments to all our vendors, and we continue to support them in this hour of need. The principal being to pay some to all, but not all to some. As far as the new store expansion is concerned, right now, the focus is to conserve cash and all fresh CapEx is on hold for a period of at least 3 months or till the time we see some signs of improvement in the operating environment. Another initiative being worked upon is to increase the FMCG offerings in some additional stores. This is not a strategy shift. Roughly 45 stores already offered FMCG, and we would just want to add a few more stores so that we can cater to larger audiences. The pilot on omni and online offerings has been in place since Diwali. We will want to start scaling this gradually, now that more than 10,000 products have been photographed and cataloged. The app is already live on App Store as well as in the Google Play Store. And we've been receiving continuous flow of orders for the last many, many months. While for the lockdown period, we did not really pushed this because the logistics were closed, but we have restarted this and now planning to make this slightly bigger. There is no big bang marketing spend planned around this, but the approach will be to offer the same merchandise at same price points on the omni-channel also. We also have plans to extend this in a limited manner to other marketplaces like Amazon or Flipkart, et cetera, in phases for which some work is already on. Digital and tech adoption will be a big initiative going forward as corona has also taught us, and we will like to keep in place a lot of valuable learnings like, more efficient operations and lesser fixed costs imbibed in our strategy going forward also. So that is all that I wanted to say. I will now request the moderator to open the house for questions. I also have here with me Samir Misra, who is our Chief Operating Officer, and he will also be happy to take your questions around the business. Thank you.

[Operator Instructions] The first question is from the line of Manasvi Shah from ICICI Prudential.

Sir, my first question is, I noticed this big swing in the month of -- in the quarter, in sales a bit, 8% SSG till March 15 and then negative 18% SSG for the quarter. Anand, you partly explained it but there is some INR 75 crores gain/loss but then that's just new but March has effected 30, 31. The end 15 days of March are almost around 35% -- 30%, 25% of the business for the quarter?

Yes, you're absolutely right. So on a full-month basis, March would have accounted for roughly around INR 60 crores of sales and that was the planned number. And that's also the historical number that sales -- usually been able to achieve, while the actual throughput came to roughly around INR 90 crores or so. So we were definitely expecting INR 75 crores in the period which was lost due to COVID.

Okay. And with the inventory provision that has been taken of INR 9 crores, you mentioned that you ideally don't need further inventory write-downs, but do you think that this is adequate? I mean I'm just trying to understand from a season perspective if more of your collection is spring/summer and by the time the store is actually fully opened and if we are close to hitting the festive season, I mean, is the inventory actually on sufficient?

So it's very difficult for, at this stage, for anybody to quantify the -- any kind of provisioning norms and whatever number that we have taken is purely basis our estimates. And this is -- this entire amount is not only towards COVID. I think we've taken a far more conservative approach. In fact, we could have chosen to take the provisioning in the next year like a lot of other retail companies. We've been more conservative on this, and we have sort of broken this around, 2 or 3 different areas. One around retail stores, second around our FMCG offerings, and third around losses due to COVID. One must appreciate that bulk of our inventory or almost 95% of our inventory is apparel and nonapparel stock, which is -- and out of which almost 45% is core inventory, which is non-seasonal and thereby, very, very not susceptible to any kind of erosion or dilution in value. But in spite of that, we have taken this extreme step of adding ad hoc provision just to keep books much more cleaner going forward.

Okay. And the strong sale in Jan and Feb, is that a reason of good winter sales, because winter has postponed this year, and is that where the entire growth has come from?

Yes. You are also right on this. So we did see a late onset of winter. So Jan and Feb -- Jan, definitely, was quite good. Feb usually is a smaller month, but there were some marriage seasons -- marriage also and then early Holi, which helped impact the sales. Yes, we had, had a very good quarter, at least till the time we handle it close.

Okay. And Anand, in the previous quarter calls you mentioned that the shrinkage percentage you expected to go down, but it's actually gone up only. It's at 1.6% for the year.

Yes. So this shrinkage actually includes the amount of provisioning. So the way we calculate -- and the provisioning is significantly higher. There's a 0.6% of provisioning, which is there, which is an ad hoc or extra provisioning in this year which I mentioned, which is a mix of COVID, retail stores and FMCG, et cetera. So if you remove that, the actual comparable provisioning would be 0.9% or your shrinkage would be 0.9%.

Okay. And just one last question. Your rent expense is somewhere around INR 90 crores to INR 95 crores for the year whereas cash flow statement the payment of lease liability amount is somewhere around INR 32 crores to INR 33 crores. Why the difference?

It shouldn't be that. These liability payment in cash flow would be netted off on account of some other lease obligations. But otherwise, our rental expenditure is roughly around INR 90 crores, you are right, for the full year.

Yes. I mean the difference is huge, right? I mean INR 50 crores of difference in expense which is cash outflow.

Let me check that and get back to you on this.

The next question is from the line of Tejash Shah from Spark Capital.

Couple of questions. First, Anand you made a very detailed presentation on the cost measures that we're taking, cost-saving measures. But what we are picking up from other retailers that rental negotiations are not going as people had planned 60 or 90 days back. And there's a lot of pushback from landlords also on not allowing the relaxed measures as the retailers want. So where are we on that? That's first question.

Yes. Thank you, Tejash. We are -- as I mentioned during the call, we've been in a very strong active dialogue with all of our landlords. And if I were to just give a number, I think we would have already closed our discussions with at least 1/3 of our landlords in the way we wanted. And while we're not closed with the others, but we are still very strongly working to get some headwind with the rest of the landlords. And what I expect, if I look at quarter 1 of this year is that we would still end up having a rental cost of roughly around 30% on the P&L.

And on the guidance that you spoke about 50% target cost reduction is taking those balanced negotiations going in our favor? Or how's things stand today?

No, that is shaping in that direction, some amount of discussions going in our favor, while some may not come in our favor. But I'm quite sure that we will be able to do at least 50%, if not more.

Second, just wanted to understand that in fashion business like ours and looking at situation which COVID has created, what do you think about the future of trial room from here? Because a lot of your products people would prefer to try before buying it out. And with COVID, either you, if you go on sanitizing measures, then perhaps, the inventory efficiency will come down materially because of the whole quarantine for one day. So just wanted to understand, first, what is our plan on that? And second, how will it impact our inventory efficiency?

Tejash, thanks for the question. This is Samir here. Right now, I think both customers and people are able to understand that the situation is -- it's important to be safe and to be cautious. So right now we're not allowing trial and product. And customers who are coming to our stores are not really objecting to it. I think thanks to the so many initiatives taken by the government, both consumers -- customers are able to understand why it is so. And the fact that they are loyal to us and they trust us, and they have seen the product earlier, they have tried it. So there is not too much worry about sizes and other things. So it looks to be we are fine at the moment, Tejash. And that I do not think that will have any impact on the overall inventory.

Sure. And if I may squeeze in one more. You mentioned about swapping historical bottom performing locations with better proposition. So does it mean that this year focus will be on consolidation of counts -- store counts?

Yes. There will be some kind of consolidation. We will look at some of the stores which are not doing well. Either we will try and make it work by talking to our landlord and improving efficiency, rental, et cetera. Or we will also attempt to close the stores and open more profitable store. So we will be looking at efficiency overall in every line item of P&L and everything what we do.

Opening will be part of this fiscal year or second half of as the situation reduce?

The second half. First half, we will be little cautious on openings.

[Operator Instructions] The next question is from the line of Abneesh Roy from Edelweiss.

Sir, a lot of the FMCG companies and the consumer companies are saying, they're seeing an opportunity in this crisis. Now when I see your FMCG, you have taken into more stores. So one is, which are the stores where you're taking it? Is it largely in the bigger cities where COVID crisis is bigger, so it makes sense there? Second, you mentioned this is not a change in strategy. So my question is, why don't you want to take it to more stores so that there is a better mix, better assortment for the customer? And in case of any kind of -- this kind of -- this doesn't come every year, but why not do it in more stores, at least some square feet dedicated to FMCG?

Yes, Abneesh. So we know that we have been always genuinely focused on our strategy, and we still believe that, we'll do, and we'll want to better -- do more of what we do the best. So FMCG is definitely not one area which we know the best, is what our belief is. And there are players in the market who have been within all the areas. So what we are trying to do is, just we have caught up re-devising or rethink on FMCG. I'm thinking from thought -- because that the customer demand is important, and does he demand and where does he demand, and what is the market availability. So what is that we will be trying to find out, I understand. Where is the entire state that we have got? Where are the areas where we actually got succeeded looking at our past and looking at right now even a competitive intensity there? And looking at the kind of town that it is. So we are trying to make a very good thought around it. And why we are not using all the stores? Because we don't want to use it. We are more a fashion store, and the fashion aspiration is something that we need to create. And we are actually looking at bettering our store in, bettering our store outcome, inviting more [ girls ] and young families, so that they can really take it as a fashion destination, but not as they are in a kirana destination. So we definitely don't want to shift our focus from fashion to kirana. But yes, we definitely want to leap on to the opportunity which the COVID is throwing right now. So trying to also help the community and help restore wherever we want the store to perform better. There's an efficiency for a store to do it more. We are doing lot of analysis or understanding which kind of the customers are coming in, whether the ability for those kind of customers who shift to the FMCG would be higher, and there is a demand. So we are carrying out some interviews. We are carrying out some surveys, trying to understand that we are really doing it right with our customers.

My second question is essentially on your expansion strategy. So warehouse, which you mentioned, that's being put for 3 months in terms of hold because you mentioned that new stores will not be expanded for the next 3 months? So warehouse also the time line is 3 months in terms of delays?

We have decided not to add any warehouse sales in the current year, at least, and for the next 1 year. So we will definitely be able to -- we are generating more efficiency between warehouse, and we have postponed the plan for at least 1 year right now.

And one follow-up to what Tejash asked in terms of the shift from the bottom performing stores. So if you could put a number in terms of bottom performing stores. What is the number of stores you have in mind? And second, you said, you will shift that to alternate. So in the competition from local players, is there much more pain, and that's why you expect some stores availability from there? I'm not asking on the Reliances of the world. I'm asking on the local competitors. Is the pain really much bigger there, and that's why you see alternate location being available?

No, I think, Abneesh, you need to understand. This is the time when we have to be also smarter. We need to also look at the potentiality -- the future potentiality of a particular store. And every decision that we make, there will be 10% to 15% error or there'll be 10% error which we just do. And all those errors or whatever it is, it may be because -- maybe created because of competition, which is only one of the reason, and it can only be a small reason to it. But there are larger reasons, which are locations, which are even the kind of footfall that we get, the kind of management that we did in the past, whatever, whatever we have done. But the store today is not performing to its best and there are stores which are not performing or giving us a reasonable EBITDA or giving us a desired ROCE. So why not I invest my assets, the capital employed, to any other location and trying to get more revenue out of it. And if I'm getting an attractive deal in some other location, and if this store is unable to give me those ROCE, why shouldn't I do it? So I'm just trying to be very opportunistic and trying to understand whether the landlord here negotiates or am I being able to generate higher ROCE or we do a swap. So it's nothing related or we're [Foreign Language]. So there's no shame in saying that and we have always done that. We have done this in the 2010 Lehman Brothers crisis, and we'll do it right now also. If there are locations which we -- which is still not able to perform to our desired standards, we'll always want to better that because every store of ours should be able to give us a desired revenue and desired EBITDA.

And comment on local competitors?

No, I don't think they were competing right now because this -- everywhere they were shaked up and they were shackled, and we don't want to really look into those areas because they have their own strength. They have their restrictions. There may be some local competitors, which can grow and get a little more larger. And the one which can get wiped out. So we don't want to comment on those. But just we really want to understand where can we survive, where can we do better, what can lead us to a better role. We're not trying to really look at the competition and then [ go out, no ].

And sir, one, very last small question. So migrants, if you FMCG companies are very excited. Sir, millions of migrants coming back, I agree with your remittance point, but such a large shift will happen. Instead of buying in the urban where your store is not present, these migrants will be present in your area. So will there not be overall benefit to you? Why are you a bit cautious on this?

Yes. Ultimately, Abneesh, people have to have money in their pockets. And what we believe, there are not too many employment opportunities in the towns where we operate. So these people who are skilled enough, who were working in some factories, who were working in some industries will not be able to only work in the fields. And there is so many [Foreign Language] there are not so many of opportunity for [indiscernible] to try and work and they can't become laborers. So I think there will be a challenge. There'll be some time zone where they will lose certain income. And then that loss in income will, obviously, ultimately lead into their lesser consumption. So that's my macro view. But at a smaller micro level, yes, there will be more population. They will consume more. And they are the people who are living there. They will consume more. I understand. But they should have money to consume. So that's my larger piece which I'm asking you, right? So you guys need -- what is that you are seeing?

Sir, we depend on you for the views. So we'll wait.

The next question is from the line of Sachin (sic) [ Nitin ] Gosar from Invesco Mutual Fund.

Yes. Nitin Gosar here. Sir, two questions. I just wanted to understand, if you called out a number of stores that form part of the bottom performance category, which you called out? And what could be the number around that stores? And second question is pertaining to employee cost, where we called out from May onwards, there will be particularly who have worked on variable and deferrals. Could you elaborate more just to get a handle on how the cash flow may look like?

Anand this side. So on the first question around the number of stores that we may shut or swap, I would not really want to give out a guidance. This is work in progress, and we will continue to monitor and assess opportunities not only from a point of view of closure, but also from a point of view of replacing that business with or that capital with something else which is available. So the question is not only to shut, but also to recreate. So we will take the right decisions, which is what is available. On the second side, second part, on the employee cost, we're looking at our overall cost reduction of roughly around 25%. And as I said, it will be graded at various levels, including some deferrals or cuts. So -- but the overall impact that I can foresee for quarter 1, not -- yes, for quarter 1, maybe in the range of around 20%, 25%.

This is overall cost you're saying or only employee cost?

Overall employee cost, yes.

Okay. And rentals, you called out around 30%.

Yes.

Okay. Just reiterating the first question. What share of capital do you think is not giving you the right return?

Nitin, come on [Foreign Language]. There'll always be a theory of. You can't have all the capital employed performing or giving you similar returns. So there will be always lesser ones, higher ones and topper ones. So there will also be 15%, 10%, 20%, 30%. Normally, someone will -- 1/3 gives you very high return, 1/3 gives you an average return, 1/3 gives you a lower return. So within those 1/3 what is ideally that we are trying to do and that's how the whole analysis is done and we'll try to always better that. It'll be always there in the order, which will be descending to us in -- [ descending order ].

We will move on to the next question. That is from the line of [ Mike Ed ] from [ Alquities ].

I will ask just 2 questions. Firstly, if you look forward 2 years, how much do you think omnichannel e-commerce will represent of your total sales? And is the margin higher or lower than on average? Secondly, in your stores, how will you manage to safely social distance? The stores are quite small. They're quite crowded. How will you ensure your staff stay far enough away from each other?

Yes. This is Samir here. We look forward to around 4% to 5% of omni business in next 2 years. And I think the pilots, which we have done, have given us very good results. And we are quite confident that we should be able to look at this kind of a business. On margin front, it will be slightly lower than the current margin. Yes, we are not really adequately sure at this point of time what kind of margin we would kind of see because we have done few pilots. But yes, online business will be -- will run at a slightly lower margin. On the second question, we are -- our store teams are very -- has been trained for last 4 to 5 weeks, each and every employee. We have put around 14,500 hours on training every employee on the SOP on social distancing, on sanitization, on cleaning, on hygiene and how many people at the cash counter, whether should they use a trial room or not, our customers. And I think the current stores, which we are operating and the images and audits, which we have done, both the government officials, our customers have given us thumbs up on the way we are maintaining our stores and we're maintaining social distance at this point of time.

The next question is from the line of Aliasgar Shakir from Motilal Oswal.

I have just 2 questions. So one is on the degrowth opportunity, I mean, around these new stores that you said you would open around it, and close some of the bottom stores. I want to actually flip it the other way around. I think in the last 2, 3 years, there have been a lot of smaller players who have mushroomed around your stores. So do you think -- I mean, there would be either inorganic growth opportunity available, maybe some of these guys would be in big stress, either acquiring them in total or maybe a large chunk of stores in a portfolio? Or secondly, if you would be seeing or rather, are you seeing many of them closing a lot of their stores and therefore, a good attractive chunk of real estate available, which probably could give you an opportunity to probably accelerate your growth, maybe not right away, but probably about a quarter or 2. So just want your thoughts on, I mean, given our liquidity situation, do you think we are better placed than many of these smaller retail players and therefore, probably we could take advantage of the current situation and press the pedal in terms of acceleration of growth?

Yes. Ali, I think we, at V-Mart, believe that everyone around our ecosystem should create value, including our competitors. And we believe the survivor for all and everyone should survive -- should be able to survive. So I have been regularly interacting with an association, [indiscernible] trying to bring all these players and [ vendors ] then on system guidance. Also, we always have the belief that the peer group should survive so that the industry is keeping up very positively. And we will always wish a good luck for them. We don't want anyone of them to feel -- and close down their stores. But yes, there are those who are not doing very good, who will have a high liquidity challenge, and who are not able to manage the kind of change that they're filtering, network that they have, as they don't have the processes or technology to really manage it. So there may be few those who can move in bigger piece of other -- close down some of their non-performing stores, a large part of their non-performing stores and manage their existing portfolios. Or they may be some who may not do it or trying to sell it off. But we, at V-Mart, do tend to right now look at these opportunities that we have got because I think that they're not seeing any good players out there in the open who are ethically or on the government piece they are very, very strong, can be really acquired smaller group. They don't have any [indiscernible] other than the property in store which I think, we might have the capability to buy and take whatever is required. So we would definitely latch on to the opportunities if anything is created in the market in terms of the property getting vacated or property getting clear or the market opportunity which arises because of their closure or their non-performance. We definitely want to better those opportunity and we will have lot of such opportunities for that reason and grow our market share in the existing stores also. So we'll do that. But Ali, coming to your question, we are not really looking at trying to get someone on the board.

Okay. And then just one follow-up there, sir. Do you think that, that should give you the positive accelerating up to addition pace, maybe if not right away than in a quarter time? And if at all, not that, then either, I mean your -- I mean, market share probably would go up given that a lot of these close by stores probably...

Yes, I mean, let's wait for this COVID pandemic to subside and then things getting back to normal, then we have all the time in the world to do all those things. Right now, it's more important to sail the ship and then sail through this ship that we have right now. We are all in critical times and tough times. So it's not going to be easy for ourself also.

Correct, sir. I agree. Just one more question on the supply chain. So I mean, given that last 2, 3 months, most of your vendors would have also been shut down. Now at one end, we are talking about lot of our inventory maybe, if we may have to take write-down or if we will have to commission aggressively. But on the other hand, I mean, do you see a situation where a lot of your supply chain would have got disrupted and any new orders that you gave may take a little longer to sort of come to you and therefore, probably...

Sorry. Cutting you short, we have been in a constant communication with our vendor base. We have done webinar with them. We have been one-to-one having a relationship with them, understanding on what do they need, how do they come back to the normalcy claim. And then how do they prepare because we are not going to give them lot of plans. We are not going to give them a planning in advance. But we need to ensure that they are prepared for a very, very faster mine-to-market opportunities. And we will try to work with all -- our good for vendor based on all those areas. So that is our strength, and that will be our strength. So that we are able to come back as soon as the market demands pops up.

[Operator Instructions] The next question is from the line of Ankit Kedia from PhillipCapital.

Sir I just wanted to know in our geography, winter is very severe. And so from the winter buying perspective, you said the core inventory can be carry forwarded. Do you think we'll need to deep discount the existing spring/summer inventory a lot for the buying of winter inventory? Or we can carry forward to next spring/summer?

Thank you for the question. It's a good question. And what's important to understand is that our buys are very closer to the market, unlike a lot of national retailers, whereby they probably buy 6 to 8 months in advance. We buy 90 to 120 days. And that's helped us in these extraordinary times. Secondly, some of our summer inventory will also be helpful in coming months because we haven't had a full price sale. And more than liquidation, I think what consumer right now requires is and what they will value more is great value proposition. And the fact that our inventory is fresh, we'll continue to sell it right through September. Because where we work, in our geography catchments we continue to sell half sleeves t-shirts and shorts.

So we will not see an early EOSS this time. It could be a delayed EOSS in our geography?

No, we'll not have an early EOSS. I think we have never believed in -- we have been honest pricing organization. We have not believed in big discounts and end of season sale is not our biggest strength and we thank ourselves for that. So we will not have an early EOSS and start liquidating merchandise like other retailers.

My second question is on the rental. The negotiations which you have had with some of the landlords, is it only for the quarter or 2? Or is it -- will it be from a longer time frame, for couple of years?

So first of all, what we believe is in partnerships. We are not going my highway, my way or your way. What we're trying to understand through each landlord is that, we need help and we also have to help them. So we're looking at both short term and long term, depending on the property, how much business does it -- what it does? And who, what helped? So at this point of time, we are definitely talking about 3 to 6 months. But yes, some landlords who understand that when our business also improves and they may want to get a better share, we're working with them on long term as well.

And sir, in the swapping stores, do you think really -- this is a follow-up question, ma'am, on the rentals only. Ma'am do you think -- sir, do you think structurally rentals in the new stores, which we are going to open or swap, would be at least 10% to 15% lower than the existing and profitability of those stores could be much better over medium term now?

Yes. The whole proposition of shopping store is to improve profitability. And through obviously, 1 year definitely rental. The other is, we would have some -- the places where we open, we'll have higher chances of more throughput in terms of sales and most of the dealers in higher profitability.

The next question is from the line of Jay Gandhi from HDFC Securities.

Yes. Just one thing, looking at your balance sheet...

Mr. Gandhi, sir, we're not able to hear you, clearly.

Can you hear me now?

No, sir.

Is this better?

Much better.

So just one thing. Even if I look at your inventory days ex COVID, it's kind of gone up from some 82, 83 days to around 92 days. So I'm just saying that, is it that we, perhaps, may have actually lost the ball on inventory management in FY '20 itself slightly? Or is there something which will normalize?

Jay, if you look at the normalized results, a slide is there in the last section of the investor presentation. It says, I think, 80 days, 8-0. And last year, I think we were at maybe 4 days. So at a normalized scale, we would have improved inventory. And if I just calculate the INR 75 crores of sales lost for the March period alone, I think you would arrive at the same conclusion. So absolutely, there is no worry as far as we see on the inventory position. As I mentioned earlier, at a overall level, we are fairly comfortable with the inventory. And bulk of our inventory is still on the apparel and the non-apparel side, which is non-perishable and also not going out of fashion.

Right, right. And just a follow-up on that, was that like your inventory is relatively fresh, so is other retailers as well, right? So once the lockdown is kind of -- once we have passed this sales crisis, would it be that because of some of the guys, some of your immediate peers, being under extreme pressure of liquidation, you might have to follow suit? Could that happen? Could that be a probability?

Jay. Lalit speaking here. So this is -- today is another question of who offers a higher discount. What is the possibility of discount available [indiscernible]? This is a time when people want to only deal and talk or only interact with people who they trust. And it is largely important for us to develop or build trust to that whole customer base. So that he will be able to come to our stores without any question mark in mind. Because these are not the same time. These are times where he can get infected. So he can get infected. So he would want to only come to store, which is doing its best on the process, system, taking care of the employees and taking care of the customer. And then, obviously, giving the value for money, that is more important. It's not important for the percentage discount, he is offering what, it is more about what value of money do I offer, and what product do I offer and what fashion do I offer. That will be still more pertinent and better important. So I think that is the core thing that we are focusing on. There may be some competitors who offer more discounts, and there are competitors who are -- who have been regularly doing this. We don't want to change them. We don't want to really go on the back.

Sure. Sure. And the last thing was, in the press release, it's mentioned that you've reached around 40% of normal footfalls. Just correct me if I'm wrong. I'm presuming that...

On the day the store is opened, we are receiving almost on an average of 40% of this footfall, on the day.

Fair. Fair. But is there some increase in bill sizes also, which kind of helps you mitigate this? And as a percentage of revenue, it might actually be better -- you might be better off?

We don't know yet. Right now, we don't know because there is a pent-up demand, which is coming up. So the unit per transaction or the number of pieces in the sale is going up, but the average prices of the product is going down. So I think there will be a mixed response. But right now, it's too early. I mean it's early days for us to react.

Fair enough. Fair enough. And I might just be pushing my luck on this. But if store are starting to hedge, is there some CapEx guidance you might want to give or you might want to stay off?

Sorry, sorry. Don't want to stretch too much.

The next question is from the line of Girish Pai from Nirmal Bang.

Anand, on the rental side, you were mentioning that you already renegotiated with some 30% of the store owners and you are expressing that you will probably be able to go to 50%. So what happens to the rest of the 50%? I mean are you thinking of kind of dropping them and moving on to another set of landlords?

Girish, it doesn't mean that we have lost our battle with the other 50%. What he said is the current score where we've got a confirmation. So we are still working on it. The team is very confident. The team is working and the landlords have been a partner to V-Mart. And they have high, high consideration for us and we have high consideration for them. We will ensure that those people don't come into a pain. And even we are able to manage our balance with them. So it's a pure partnership, and we will be definitely doing something which will be benefited to both of us.

Second and last question. I thought you were implying that there's going to be some kind of down-trading benefit to you that people are going to shift from the national players or ASPs higher than you. That's one part. The second part on that, what would that mean for your gross margin in FY '21?

Girish, it's 2 parts. One is, it's not a clear cut strategy or a very clear identified approach as to what properties or what opportunities we will eventually end up having. But if I look at the down-trading and the margin profile, there may be some impact if the down-trade is significant. But as Lalit mentioned, just a while back, it is slightly early days to understand and react as to, if this is a permanent trend or a likely trend going forward. Because right now, what is happening is that people have not shopped for almost 2 months. And they're coming out to buy bermudas or pajamas or t-shirts in larger quantities. But is that something that they will continue to buy even 3 months from now? I think the jury is still out. So we will just have to little bit wait and see. But having said that, the margin profile across our product portfolio is almost very, very similar. So whether he's buying a shorts or a t-shirt or a formal shirt, the margin profile will very much remain the same. Because we work on a markup principle, not a discounting principle or a markdown principle. So therefore, there should not be a significant impact. But as I said, these are early days and we will probably have a better historical share in the next quarter.

Sorry to belabor this point. The first part was regarding the market share shift from the national players to you. Are you kind of implying that?

So again, very difficult to say. There will be some down-trading happening, and there may be some customers coming in from the national players to us and probably also away from us to even lower price points. So possibilities in both the situations. So again, very difficult to say that, this will happen or that will happen.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.

Thank you, everyone. Thank you for being on the call, and thank you for the support and the guidance that you all have provided the entire year and even now. And the trust that you have showed means a lot to us. And we are here, V-Mart team is here doing this best, trying to pull up the best out of the worst times. And we are definitely taking it as opportunity in these challenging times. So we'll definitely come out much, much more stronger that's our belief. Thank you, guys. Thank you so much. Have a good day.

Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.