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

Ladies and gentlemen, good day and welcome to the V-Mart Retail Limited Q1 FY '21 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dharmesh Shah from ICICI Securities. Thank you, and over to you, sir.

Thank you, Nirav. Hello, everyone, and thank you for joining to the Q1 FY '21 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.

Thank you, Dharmesh, and good afternoon, everyone. And thank you once again for being here. Coming back once again, previous quarter, definitely not a very, very happy quarter and is something where a lot of different colors are being noticed in the market and a lot of different news comes in and a lot of alertness in terms of our action, a lot of alertness in terms of markets, consumer health, the situation in the market on sentiments. So overall, I think in this quarter, largely, we have seen all those lockdowns happening. And then post the lockdown, we've seen the stores getting opened up or the markets getting opened up. So overall, in the first quarter, the industry or the consumer market, I would say, has really got affected a lot, except the food and the basic consumption. So other consumption has really not been there. And we all know and we have all seen that the amount of lockdown, which happened and then post the lockdown or even during the lockdown people did find a lot of challenge in sourcing their regular need products and sourcing their daily need products. So they've got all those in place and then dealers aligned together to feed them. There was a lot of mixed response from the government side. There was chaos at times. There were clarity at times. And there are differentiated ways of governance in multiple territories and -- which we have done -- spoken before also. So there has been a constant shift in the positions as far as the local administrations are concerned. And they have been often on taking little aggressive calls and some of the administrations taking a bit lighter calls on closedown. So closedown has been a real enemy for us. And closedown is something which has prevented our customers for -- from not coming up in the market and consuming. So yes, there has been -- some government has been very, very risk averse and some government has been risk takers and -- but cases have grown in both the areas. So -- but there are also some political essence behind what -- how big of an issue it is. But overall, I think in our markets, initial 45 days to 60 days, we have seen almost all the stores are locked down. But yes, the June month, we saw a good pick in the operational days. So we saw almost 75% operational days in the June month. And -- so for us, is the indicator of our market and that's our market. So it did open up, people came out, and we could see the first week of June, in the late May, we would see a little dip in the people coming out. But yes, immediately, people developed confidence because in smaller towns, till that time, the pandemic had not reached so severely. So initially, we did see some marriages also happening to the end of June, which also led to a lot of consumption. And marriages with small gatherings were happening. And some of that news gave a good pent-up demand also and there was a lot of pent-up demand which was there. So we saw both essential as well as nonessential category as we define, but typically, it may be also essential for them. So those things came out in huge demand, and people came out, people wanted to shop, and we saw even queues outside some of our stores during those times. But overall, I think the industry -- retail industry has been suffering. And there has been a very, very difficult time for each of the retailers and -- except the FMCG retailers only or the online retailers. But most of the brick-and-motor retailers, largely operate out of mall or who operate out of high street, both are really reeling under pressure. And there has been very, very low footfall in the market. And it has been difficult for them to control their costs, renegotiate with landlords, have a negotiation or kind of asking for relief to the employees and then other costs going down. Inventory has been a challenge. People have not been able to do too much. So the situation with retailers is not very exciting. So we contribute to that and we see that there is pressure on those. And -- but yes, somewhere V-Mart has been still doing a little better than what we've seen other peers doing. And we have -- because of our locations and because of our customer base, we have seen some customers coming back. But still, we were only able to do a certain sales in those period of times, where we saw almost 2/3 or more than 2/3 of our store were closed in the quarter. So overall, what we are seeing, our ecosystem includes customers who are in pressure. We have not seen rural customers coming to the urban towns. We have seen migrant labor going away from stores and from areas. Even our people who work with us also went away to their villages. So there has been some impact of that also. We've seen customers not moving, customers not traveling. So that has also -- is an impact. We've seen employees with a very, very low confidence, with a fear of whether their jobs are going to remain or not. So most of the people in general who work for someone or who work for themselves has been at a very, very low confidence level. And people were not too confident on their income generation sources, on their consistency. So that has led to overall feeling of lowness and that's something that's come up. And other ways, the good news that we see is the customers or the ecosystem where farmers are there or farm-related income. So there, I think a lot of work has happened. And we see the farmers' incomes are going down. MSP has been up by the government. There has been a good rainfall that we are experiencing. People have been able to -- farmers have been able to earn to their fullest. So their crops and their -- there is a picking which has happened. So there they don't find a lot of challenges in their sales. So that is one reason, and that -- you've heard that -- this [Foreign Language] and Bharat is going to save India. That is the hope that we have and that should be a good news for us and for our India. And that's what we are hoping and that is what we will wait for. So otherwise, the ecosystem also includes vendor base, who are also not in a very, very good state because all these manufacturers, smaller manufacturers, one, they don't have a lot of workforce working for them. Most of the people have gone back to their villages. Two, they don't have capital because they are not getting too much of payment from all the sources. Three, they don't have orders. Because most of the retailers and most of the people have inventory. So there is a weakness even in the vendor base and they are facing some challenges because of that. So overall, the situation is a little hazy. But yes, at V-Mart, we are trying to give clarity at all the areas. We're trying to understand areas, give relief to wherever we can, see that no one gets hurt too much, no one gets impacted too much. Liquidity management has been consistent, and we have been always ensuring that we follow the same principle of some to everyone, but not all to one. So with that principle, we are able to distribute whatever cash we have to most of the people, either vendor, employees, landlords or other stakeholders. And that has been a consistent approach so that people don't have day-to-day problem. And so that is the situation. And overall, we believe that there is a good spike, which should come in post -- near the festival. This quarter, till now, we've seen a lot of lockdowns happening in the states of Uttar Pradesh, Bihar, which is our core market. So a lot of -- almost Bihar has been closed for almost 1 month -- for the last 1 month. And we have seen a good impact in those towns and those cities. Even otherwise, there are a lot of lockdowns in Orissa, Northeast, Madhya Pradesh, and we can -- closer with Uttar Pradesh also. So there has been very, very difficult times in terms of opening the store and letting the administration understand about opening the store, communicating with the team, regularly changing the plan, regularly working on those. But yes, kudos to the team V-Mart. They have really pulled it well. They have integrated themselves. They have really worked well joining hands together. In these difficult times, all our front-end army was all there to try and reach out to the customer, to try and understand where is the customer, to try and serve the customer if the customer is in the store with all the safety and also try and approach and go to the customer wherever they could and whatever they could have done. So we have taken all those efforts to try and facilitate shopping to our customer base, give them all the solutions needed, so that they -- we can help in their pain. We can help in whatever they need. So that was the approach. Profitability has not been at all given any kind of priority. Right now, the priority has been primarily to ensure that, once again, employees are safe, stores are safe. We don't lose too much of brand revenue or we don't lose too much of inventory or we don't lose too much of assets. So yes, trying to retain everything, similarly also trying to give confidence to the entire ecosystem. That has been our approach. And with that approach, we'll also deal forward. We believe that every month, there should be a substantial growth in the achievement rate versus last year because our customers are largely dependent on these things what we sell. And this is not something which is like ready for them. So this is discretionary. So we will -- which I think is -- for us is a good news and customers -- and what we have seen also customers coming back whenever they need it. And we have seen that in the eve of some festivals which came up in the last month also. So what we notice, these customers are agile. They are young, and they would want to come out whenever they are allowed to, to fulfill some of their aspirations because they are also tired now with the lockdowns and they also want to come out of that pain. So that's what I have. Let me just give this to my colleague, Anand. And Anand can share you the details on the numbers because the numbers were too small. Not everything can be compared at a quarter-on-quarter or year-on-year level. But still whatever good that he could have done, he has done. And to tell you, our Board has been very, very cognizant of the fact that there is a high risk that is available. So we have taken -- they have taken a very restricted approach in terms of inventory management and stuff. So our auditors have also reviewed it very nicely, so Anand has got time for him to convince them also. So Anand, over to you. Thank you.

Thank you, Lalit. It's been a very challenging and unprecedented period for all of us, but we have well adapted to survive and thrive even in these challenging times. I'd be happy to share some of the highlights from the quarter and then probably we'll open the house for questions. The quarter was marked with extended period of lockdown in April and most parts of May, as we all know, resulting in complete stoppage of operations barring 2 or 3 stores, which could remain operational only to serve essentials and that too through home delivery model, resulting in almost negligible revenue still about mid of May. Gradual opening of lockdown from May led to partial restart of operations. And it's only from around 8th of June when the company could have around 70% of the stores back in operation. As such, while April had only 2% operational days, May had around 22%, while June had almost 79% of operational days, with the quarter totaling at a total of only 34% operational days. Side-by-side with footfalls only of around 13% versus last year, the sales achievement we could manage versus last year was almost 17%. We also saw a very good increase in the average bill size going up by a good 14%, while the units per transaction also went up by 18% for the quarter, although the ASP did come down by 8%, which reflected the growing demand for leisure and comfort wear against less of formal wear or bottoms, which traditionally have a higher price throughput. We also added 2 stores during the quarter, while we also closed 2 stores. We still remain very cautious on new stores, while continuously scanning and readying our pipeline for new opportunities, which we can quickly work around and operationalize. On the margin front, gross margins for the quarter remained flat at 31% despite conservative provisioning against inventory to protect against any possible margin losses in future months. While we do not really anticipate any significant exposure on inventory, but we still remain conservative on creating provisions, which can come in handy later on. As a perspective, the company had a total provision of INR 11 crores at the end of quarter 1 last year, which currently stands at INR 28 crores, which we have built over a period of last 1 year. The inventory is now largely under control as a result of very tight measures adopted in the last 3 to 4 months. From INR 480 crores in March, it has come down by INR 50 crores to INR 430 crores in June. And we are committed to get this further trimmed even as we prepare for the upcoming winter and festive periods. Purchases during the quarter were put on complete hold. And even now for the upcoming winter season, the order placement is happening with a very tight level of controls. Coming to the expenses side, while there has been a lot of work done on cost reductions and despite the fixed nature of almost all expenses, traditionally, retail has a lot of fixed expenditure, but still, we were able to reduce our cost by 40% year-on-year. This has largely been led by almost zero marketing, which was INR 8 crores last year in quarter 1, almost zero travel cost, major reductions in power and fuel cost, security and housekeeping and maintenance and also employee-related cost. On the rental side, which remains one of our biggest cost item, while the company has been able to successfully negotiate rental waivers for the full lockdown period with almost all of our landlords but the full benefit of the same has yet not been reflected in the quarter 1 financial as the addendums and revised MOUs are still under signing. Consequently, the financials only reflect roughly around INR 2.5 crores of savings out of a total possible savings of around INR 18 crores, which we had identified for the full year. The balance of this, which will get reflected in subsequent quarters as and when the MOUs do get signed up. Coming down to EBITDA. So despite all these cost reduction efforts and -- but owing to the reduction in the top line and higher provision on inventory, the EBITDA did come down. It's negative versus last year. And in addition, the INR 8 crore impact of Ind AS accounting charge, which has been optical charge, which we have been talking about for the last 4 quarters, that also is there, and that has contributed to having an overall net loss of INR 34 crores versus a profit of INR 18 crores last year. On the CapEx side, we opened 2 stores and closed 2 stores during the quarter, keeping the store count intact at 266. These new stores were actually already identified for opening in March, but some parts of CapEx was already incurred on them last year, and we were just waiting for the right opportunity to make them operational. And once the lockdown or the unlock started, we sort of operationalized these stores towards the end of the quarter. There was no other major CapEx during the quarter. And even now for -- as far as the new store expansion is concerned, right now, the focus is to conserve cash as we keep scanning the environment for any good locations, which we will open, only once we have visibility of an improved operating environment. On the cash front, the company remains fairly comfortable and has been meeting all its obligations to vendors and other parts of the ecosystem. May not be in full, but at least piecemeal, so that on a very regular basis, so that everybody is equally comfortable working in the larger ecosystem. We have so far only utilized approximately INR 13 crores of our working capital limits in quarter 1, and we have more than INR 200 crores more variable for use. Otherwise also with increasing sales traction and no CapEx plans for this year, we are fairly confident of keeping our liquidity position strong. And we will still aim to end the year with a debt-free status. On the other initiatives, I think, lastly, I would want to mention about the omni platform that we've been working very strongly on for the last 6 odd months. And it could have come more handy at a time like this. We have been further strengthening the online presence through our website, vmartretail.com and the apps, both on Google Play Store and the Apple App Store. We have been running promotions throughout for increasing our customer traction on omni, and we will continue to strongly prioritize our online play. It is, as of now, less than 1% of our total business, but we will definitely want to grow this bigger in the years to come. So that's largely all from my side. And I now request the moderator to open the house for questions.

[Operator Instructions] First question is from Jignesh Kamani from GMO.

Hello?

Yes, sir. You are audible.

Yes. [Technical Difficulty].

Hello, Jignesh. Can you hear us?

Hello?

Yes, sir.

I just want to know the footfall and the comparable dividend impact for the comparable store in the month of June and July for the store which are operational.

Jignesh, Samir here. Can you repeat your question, please?

Yes. So as you mentioned that in the month of June, almost 2/3 of the store was operational around 75% of the days for the operation. I just want to understand how is the demand environment for the store, which are open on June and July. How is the comparable revenue and the footfall when you compare it with the last June and July?

Sure. Good question. So we are happy with the kind of response we have witnessed in the stores, which opened in June. There was obviously some pent-up demand because we opened after considerable amount of time. But footfalls, depending on days, which days, which weeks did we open, later end of the June was also one of the festivals, Bakri Eid. But overall, we saw 40% to 50% footfall coming back to us. And that's been kind of a consistent number. But as I said, initial few days, we probably, in some markets, saw 70% to 80% footfall when it tapered down. So we are seeing crests and troughs of consumer buying pattern at this point of time.

So July will be the 70%, 75% in terms of revenue considering higher, you can say, conversion?

No. What we are seeing is a little better trend in June. But as I said -- I think, as Lalit mentioned that consumer demand is only getting better, but not substantially. We are seeing 10% improvement.

Understood. My second question is regard to the migrant worker. Lalitji mentioned in earlier call that migrant worker has returned back to UP, Bihar from other state, which can impact the disposable income. How is the current color on the migrant worker? Has the other part of the country started work and say resumed? And is migrant worker went back to the, you can say, respective state and started earning? And hence the disposable level is expected to go up? Or is there is no much [ relativeness ] as of now?

Sure. Well the news from the big cities are and we all watch television is that migrant workers are going back. The states are calling them, wooing them, especially in cities like Delhi, Bombay, Bangalore, Delhi NCR. So we are seeing people going back to work. People have to get employment back, get -- earn more money. And that's the trend we have seen in the last 45 days or so. But it also depends on the fact that which city is coming out of the big spike. So Delhi, Mumbai even for that matter, Gurgaon is probably out of that big spike as far as whatever data we understand now. So these cities have seen probably a little bit of more migrant workers coming back. Others may take more time.

Next question is from Mike Sell from Alquity Investment Management.

So could you give us a sense as of the first week of August how many of your stores are opened now, please?

Which is the last week, right?

Yes.

Around 75% stores.

And would it be fair to say that when we get to the festival season, we should not only have a good festival season due to the good monsoon, but would you be expecting pent-up demand to be delayed there, so you get a double benefit? Or is that positive?

Well these are very difficult questions to answer. And I'm not too sure. I wish there were consultants who can answer this question for us. But we are hoping to get a good festive. We are hoping that there would be some pent-up demand. The first festival is Pujo, which is the Eastern part of the country. Having said that, Eastern part of the country has not really, if I must say, come out of the peak and, thereby, it's a little bit of a double whammy what to expect. So I think what we are doing right now as a team is we're watching every week. And we are creating and cocreating the plans together, so that our cost and sales and inventory is in line with what the consumer trend in the market is.

And final question is, if we go forward a year when things are more stable, what percentage of your sales would you expect to come from your omnichannel, your apps, your e-commerce? And what is the EBITDA margin versus your physical stores in your budget plan?

I wish I can give this answer to you. And if I'm able to give this correctly, I must be one of the best in the class. But we think that we would see demand coming back in the market. We would also expect that since this year, people have not gotten into -- they've not got fashion and apparel as much as they have normally, we would like to see and we expect completely that you'll see the same kind of demands back in the market.

So my question was specifically on the omnichannel. Just how that will play out as part of your overall sales?

Sure. We have very recently developed omnichannel, as Anand rightly pointed out. We have seen very good response from the market. Right now, we are at a time where we are still building up our efficiency in omnichannel. So it'll be a very difficult question to answer how the business be. But we still -- we feel that we should be able to do 2% to 3% business, for sure.

Next participant is Manasvi Shah from ICICI Prudential AMC.

Yes. Am I audible?

Yes, ma'am.

Yes. Congratulation on very good cost control. I have 2 questions on the cost. One on employee cost. So that is actually down way steeply. Can you explain where this is coming from?

Manasvi, I think it's a mix of measures that we have taken. And so we had established some protocols, some system as to how we will handle the employee cost because it remains one of the largest costs on the P&L. So for the period of lockdown, we had instituted certain measures, which included, amongst many other things, adjustments of past lease due, et cetera. And for the post lockdown period, we had very strictly enforced attendance-based pay. As you would understand that a large part of our stores and especially the front-end workforce is also migrant to a certain extent, and they also travel back -- a lot of them travel back to their home states or hometowns, and thereby, also, a lot of them could not come to the stores. And given the MHA mandates, we were also constrained to not have more than x number of people within the store to service the customers. So thereby, there was some amount of savings, which is coming out on the employee cost line.

So would you say that there was -- it could have been a case where the employee was ready and willing to come to a store, but because of those guidelines he wasn't present in the store and hence his pay was cut?

No, not really. It's not like that. We did implement rosters. We did implement various mechanisms to control that. But otherwise, just to add on this also, we did salary reductions for back-end employees and also parts of the entire management team, which was disproportionate. And that -- all these measures in totality bring up the cost reductions.

Manasvi, this is Lalit here. To add on to this, I think, we can proudly say that V-Mart has not asked and then Samir here -- and he's been very, very, clear on this particular process point that we will not ask anyone to go back, go away or not come. So we have tried to ensure that everyone in our system is able to serve and be there. And we have not asked anyone to please leave the organization. And wherever possible, we have tried to also give them some other opportunities in case they have not been able to attend all the days of the routine because there are some 1 or 2 days, which is post lockdown and which you have to maintain. But otherwise, I think we have tried to ensure that everyone gets that. But yes, you have to also manage your cost and also ensure that they work for the ambiguity.

Sure. So out of these -- the reduction in force, how much of this is sustainable in the coming quarters?

So I think -- so we will continue with some rationalization in costs that we have started in originally in back end. And in the front end also, we look forward to the festival days. We look forward to the days in which the footfall may go up. But otherwise, yes, we will try to sustain some of them. But not as much as what we could have done in the first quarter because we have seen very low footfalls in the first quarter. And actually, a lot of lockdowns and a lot of desperation in people in terms of [Foreign Language] so people who were there and then they couldn't come back. So there was those situations where people could come back and could attend also. So I think we should be able to manage with some extra cost in the next quarter, but not as low as this.

Okay. Sure. And second on rentals. Anand, am I correct, you mentioned INR 18 crores is the total savings for the year in rentals, correct?

Yes. That's correct, Manasvi. It will be. It's the projected number. It is not yet reflected because the accounting for that can only happen once we have MOU signed and in place.

So that is somewhere around 18%, 19% on your normal annualized run rate. So does this effectively mean that this reduced rental of INR 18 crores is a new base for FY '22 and the future contracts will be based on this reduced number?

No, no, absolutely not. This is a onetime reduction, which has been specifically negotiated only for the COVID situation -- only arising out of the COVID situation. These are temporary accommodations, which our landlords have agreed to as being a well-wisher and part of the ecosystem. But post COVID and post the negotiation whatever period that we have agreed them for they will revert back to the original contracts.

Okay. And in FY '20...

Sorry to interrupt.

Just one last question. It's just a follow-up. In FY '22, how much is the investment you are looking at for the omnichannel business?

So as Samir just rightly said, we are still in a very nascent stage of understanding the omni business. And while we have grand plans, it will be slightly premature to share exact number on our investment size. But nevertheless, I would just want to mention that omni and online will remain a very strong focus area for us to grow in.

[Operator Instructions] Next question is from Abneesh Roy from Edelweiss Financial Service.

Sir, if you see Amazon e-com sales, which was -- which is being held past week, it has hit a new record. And in light of that, how do you see any -- do you see any green shoots in your consumption in July, August? And when you say you want to have higher omni, higher e-commerce, what is changing in your strategy? Because in the past, you have said this is not very profitable because of the returns, because of the delivery charges. What will you change there to make it sustainable? Only then it can go up, right?

[Technical Difficulty] in online sales. And this is an area where we definitely see green shoots emerging. We have traditionally not been an online player, and we've been working on this for the last 6-odd months. And the early signs that we see are definitely very, very [Technical Difficulty] We are still trying to fine-tune our operational setup [Technical Difficulty]

Sir, sorry to interrupt. Sir, your voice is breaking.

Yes. So I was just saying that we still see this as a very, very promising part of business, and we will -- we are still fine-tuning our operations and fine-tuning our cost bases. And we believe that once this business comes of scale, we will be able to optimize this for profitability as well. So as of now, also, we're not working on negative margins as far as the marginal cost, et cetera, is concerned, while there is a bigger load in terms of fixed cost structures of overheads. But as I said, we are working towards making it slightly more scalable and building up the base so that we make it a profitable business just like any other store that we run in the V-Mart ecosystem. So when we do reach there, and we definitely have some plans of reaching there, we will definitely -- we are definitely looking at this business as contributing, may not be significantly, but definitely contributing to the overall bottom line of the company.

One last follow-up. On the assortment, are you changing anything, FMCG, lower priced products? And now today, vaccine has come in Russia. So you said on winter sales, you are quite cautious. Now 4 months down winter is there, can you change -- can you course correct -- say if vaccine comes in 2 months, can you course correct your buying of winter or will it be too late?

Abneesh, so I think I should speak to you separately on projections. If you are going to give me good hope, I'm always ready at 30-day notice. So we will definitely look forward to any such spurt in demand. And our team has been equipped enough to align with the vendor base, with the manufacturers, so that we are able to immediately fasten up the manufacturing process and supply chain process to make it reach. So we are -- not that we are taking it very, very low as a projection. But yes, of course, we are being cautious. But yes, we are also alert. So we will keep ourselves -- our eyes and ears open, and we will keep -- definitely keep watching it week on week. Your Russia and other countries may have come up with vaccines, but I don't know when will it reach to those towns in Bihar and UP. That is where you get the impact. But yes, definitely, I do believe and do believe in the consumer base there who are little more fearless, who will come out of their houses whenever the need arises and they will come out to even earn for themselves and spend for themselves.

FMCG mix?

FMCG mix, I don't think we are focusing very, very highly on because we are not an FMCG player. So we did wanted to do some focus, but I don't think it is allowing a lot of room to us. We are also looking good with apparel and nonapparel sales. We'll continue with our mix. I don't think there will be a large change in the mix. Yes, we may see a little drop in the higher-priced point product sales. So that is what we are targeting, that we will work more for lower price point mix products rather than working for a higher-mix products because we believe that customers' payment or the budget or the pocket size will reduce and they will not want to spend as what they would have spent in normal times.

Next question is from Resham Jain from DSP Mutual Fund.

Yes. I think -- congratulations on, I think, good cost control initiatives which you did in this quarter. So my question is on overall merchandise strategy going forward. As of today, I don't know whether you have already started doing fresh procurement in bits, but what will be your procurement strategy be going forward given the change in the consumer taste? And also, you have highlighted on the rental side that they are under tremendous pain right now. So how are you aligning your supply chain with vendors because a lot of vendors themselves are stressed on the working capital side? So just on these 2 questions.

Resham, definitely, as I told in the earlier comment also that we have changed our mix a little bit, looking at our current outcome and we've analyzed that. We've understood the trend. So similarly, we'll try to take lesser risk in higher-priced products. We will definitely work on the winter merchandise. We'll definitely still work more on the easy wear and relax wear and causal wears. On the supply chain management and on the planning, I think we have been a little cautious right now. We also have inventory in our warehouses. And so we have preserved that inventory for festival uses. So we'll also use that inventory, which is new and which has not been launched in the market. So that is one. Two, we will definitely -- we've kept our vendor system on that path. We have paid them. We have managed their working capital. All the vendors who are working with us, we've ensured that they don't -- they are not suffering from any kind of -- such kind of difficulty. And whoever right now, whoever -- wherever we are placing orders to them, we also ensure that they have liquidity. Whatever support that they need, we are trying to help -- go forward and help them so that they are able to mandate their supply chain very, very nicely. But most of our vendors are also confident that as soon as they receive orders and as soon as they see some relief in the lockdown and all, they will definitely come out and they will still start their manufacturing as fast as possible. Some of them have already started doing that. So I think that situation can get under control the moment we have visibility on how much should we forecast on. So we have done some visibility, we have done some forecasting, but still we are keeping ourselves under check. We are not going all out to issue purchase orders for everything.

Okay. And sir, just related question. Have you -- given the current trend in the month of July and in August, do you see that your fresh procurement will start soon? Or...

Yes. So we are giving orders for festival period and winter period. But before festivals, we will not put up new merchandise right now. So we have -- as I told, we have fresh procurement already there, which is there in our warehouses. And there are also some pending orders which were there with our vendors, where the vendors were also not fully prepared, but yes, part of the work had been done. So those things also we are trying to see how can we tweak those designs and make it really fashionable, so that this becomes, once again, a unique fresh collection for us whenever the customer comes back.

Next question is from [ Rushabh ] from Enam Holdings.

Hello? Am I audible?

Sir, your audio is very low.

Hello? Can you hear me?

It's okay. [ Rushabh ], go ahead.

Yes. Sir, a couple of quick questions over here. I just wanted to understand like in the last call you had indicated that we would be looking cautious store rollout in H2 FY '21, while in H1 you might not be opening stores. Given the current scenario where the number of cases are increasing in the -- in some of your key markets, are we going to go easy on the store opening plan for this year now where the expansion will be loaded? And a follow-up and another question to that itself would be, how are you seeing the competition in your key markets, especially from the regional players? Are you seeing them come under substantial pressure due to which some of them could be closing down their operations?

Sure. This is Samir here. Thank you for your question. So what we're doing is we're looking at the market very closely. And if there is an opportunity, which we think is a long-term opportunity for us to open stores and in short term, also, it makes sense, then we are taking a call on those property. And we are signing up those properties, and fit out may take some time. Apart from that, what our strategy is that we prenegotiate the rentals even before we open the property, so that we know that next 6 months will not be as lucrative as it could have been. So we are aligning the landlord with us that 6 months or until it be a specific number and going forward we are staggering the rental. And we will obviously look at properties and markets which are specifically -- which is working for us, and we will not take any undue risk. But expansion will only depend on opportunity, and we'll be open to such opportunity. Yes. The second question on competition. Right now, in our market, we would say that we are leading from the front. And not just in terms of sales, et cetera, but I think ensuring that safety of the customers and staff is taken care of. We are able to communicate with customers when are the stores opening or not opening, what are the timings through digital platform. We have ensured that the extraordinary -- these extraordinary times our front-end guys who spend hours and who stand in the stores for hours we give them enough incentive to make it work. And I think these few activities, which we have been doing for last couple of months, has only strengthened, I would believe, that our customers view on us and really strengthened the trust which customers exhibited past few years.

[Operator Instructions] Next question is from Tejash Shah from Spark Capital Advisors.

So I'll try to squeeze in 2 questions very fast. So first, sir, managements have taken 2 types of steps during the crisis in retail sector. One is to mitigate the crisis and another is to reimagine the business model from scratch, wherever possible. Obviously, 3 months is a very short time. But you spoke at length about the first part, which is to mitigate the crisis. But anywhere you are seeing a chance to actually redesign the whole business model, be it on sourcing side or store network side, if you can share any of those thoughts?

Yes, Tejash, definitely, there has been a lot of workshop and a lot of discussions around what is -- how can we think differently? What are the different ways we can think? So certainly, I mean, there are 2 things. One is, as we already have a brick-and-motor store, but our customers -- what we understand is becoming omni. So what we would do is, what they bring is, we are doing open channels. So there are different ways we have to kind of do it. One is we are going also to the customer to try and see how do we reach to them. So we are also trying to -- I don't know, whether you've understood that rightly or not. We also had some trucks which went to villages to serve our customers. So we did that also to try and reach out to our customers wherever they are if they are not able to come to us because we keep on -- our store staff has kept on calling the customer, taking surveys, understanding what do they want, how do they want. So then they couldn't come to the towns and cities. So we went to them and we set up our camps there. And we really attracted a lot of customers and a lot of problems were solved, both by digitally going there and also on a digital platform by being available on the omni platform. So -- and yes, you're right, the new way of doing business is there can be a lot of resource constraints, which was there, which is basically right now. So yes, a lot of businesses can be or similar businesses can be done at a little lesser resource, which adds on to our products' value system and our approach. So I think most of the business that we have developed, we have been very, very lean, and we've always been on that methodology. And our supply chain management, our ordering lead times have always been so sharp. So that is -- that can further get getting sharper is what I could say that. But yes, if you are looking forward to a complete rehaul of the business, no, nothing of those sorts is being attempted. We don't want to rush up and take any decision on beyond that.

Next question is from Darshan Engineer from Alchemy Capital.

Sir, I had a question relating to the rental expenses. First of all, thanks for sharing the pre and post Ind AS 116 disclosures. That's very useful, especially in a COVID situation. So if you can, first of all, tell me what was the true rental cost during the quarter? How much was waived? And what is the likely waiver for the rest of the year? And secondly, as for those disclosure, I mean the PBT that I get to calculate is somewhere like INR 384 million as per my calculations and what is shown in the presentation in is INR 340 million. So if you can just explain the difference of INR 44 million. Am I missing something over there?

Yes. Yes. So on the rental side, there are 2 parts to your question. One is on the rental side. So there is enough disclosure on the -- in the presentation on the rental calculations. The normal rental that we have is roughly around INR 24 crores for the quarter. We have had savings of roughly around INR 2.5 crores, which as per the Ind AS 116 clarification issued by the [ MCL ], we have chosen to recognize in this quarter. The full year impact of these savings is roughly around INR 18 crores. I had mentioned that earlier during my opening statement. And we still have to recognize the balance around INR 15.5 crores during the rest of the year, but that will happen once we have agreement signed up and in place. On the second part of your question around the reconciliation of the PBT, I will request, because it's a slightly detailed analysis, probably, you can connect separately off-line with one of my team members, and we will explain these through to you.

Next question is from [ Manoj Shah from Lifecove Investments ].

My question to you is, can you comment on your customer base? Because what we are hearing is that, in rural areas, the farm income has been good, and there has been an uptick in the sales of the consumer durables and other stuff. So can you comment on who are your customers? Is it basically the rural farmers or the families of the migrant workers who are there who depend on the money flow from the cities to them and they come to your stores for the apparel purchase? And second question is on the shrinkages. Why [Technical Difficulty] increased from 1% to 10%, if you can explain on that?

Yes. [ Manoj ], let me answer your first part of the question first. No, you're definitely right. And you have understood right also that the farmers and farm income has been good. And we have seen enough strength and enough indications of their consumption also coming in, as you rightly said. And we still believe our customer base, yes, largely, these are semi-urban, both urban as well as rural customers. We have customers who are either self-employed or are working under those self-employed people, so largely. And a large part of these economy work under or is dependent on agri income. So agri is the core source of income there and from there reached other wheels and other gears which then drives the consumption. So [ Manoj ], definitely, there will be an impact. Youth of the towns may go out. Some percentage of youth of the town who can go out and who are migrant and work in the cities and also send some money. That is also there. But yes, largely -- the large consumer base is residing there, still working there, is earning there and they are largely also depending on farm income either directly or indirectly because that is how the rural economy and semi-urban economy works because there are not too many large factories and industries or large offices in those kinds of towns and cities. So that is how that consumption and that is what our customers are. And we have randomly customer base who earn below INR 50,000 per month, so INR 20,000 to INR 50,000 per month. So these are the customer base. Yes, there can be some good news coming in from there. The second part of your question was large on the shrinkage. I think Anand should be able to answer it -- that. But as I stated in my initial comment, we are going very hard on provisioning wherever we can. We don't want to take and then report anything which can create surprises coming forward. So Anand can give you technical details on it.

Yes. [ Manoj ], the percentage of the inventory provisioning is high or optically looking high because of the low top line. But otherwise, our inventory provisioning policy remains consistent. And in fact, just like in last quarter, quarter 4 of last year, we have taken ad hoc provisioning on account of COVID. This quarter also, we have taken slightly accelerated provisioning on account of our FMCG inventory, and thereby, at an overall level this might look optically significantly higher as a percentage of revenue.

Next question is from Baidik Sarkar from Unifi Capital.

[Technical Difficulty] current seat of affairs. They are what they are, and one really hopes the binary situation...

I'm sorry to interrupt. Your voice was not audible. Can I request to repeat your question?

Is it better now? Are you able to hear me now?

Yes, sir, better.

Yes. So let me repeat the question. I was saying, I don't have any question on the current seat of affairs. They are what they are and one hopes the binary situation passes. But let's take a step back and understand from you, Lalitji. What your satisfaction levels have been on the SSG front in stores that you've opened in Tier 3 and Tier 4 over the last 24 months? They've completed 2 cycles pre COVID. So if you can quantify the broad range of growth there and if they meet your growth expectation?

Yes, Sarkar, I do understand where you're indicating, and I know there has been not too much of as good performance as you would have expected out of our new stores that we have done in earlier times. So -- but yes, definitely, all those stores that we opened up in the last 12 months, we saw good numbers coming in there. Stores which we opened up in the last to last year, there were some challenges, and we could see a very high same-store sales. But normally, we would always tell our investors and analysts that the stores when we open up most of the stores during the -- this is the first year of opening, they bring in good numbers. And the second year is normally flat or this is lower than what it shows up in the first year. So normally, that's the behavior. Only for the third year, we start watching them on the escalating side. And then, yes, we've seen not a very high growth. Overall also we couldn't see a very high growth because we have not been growing on our overall SSG. So even in those stores, we have not been able to see a very high growth, but yes, we have seen a 3% to 5% growth, but that was at a lower base. So if you are personally asking me, Lalit Agarwal may not be -- and I'm always not satisfied. So somebody is watching me and as you know always kids watching me. So I'm always not satisfied with what is already available. I always feel the glass is half empty, so we need to do more. And that's the approach that we'll take. And we know these are all internally led, and we will have to understand the consumer base more. We'll have to really work hard to meet those -- expectation of those customers because the markets are not virgin anymore. And there is someone or the others who's operating in those kind of territories. So I hope that was the only question from your side, but you're confident -- you're okay with this, Sarkar.

Next question is from Vedant from Vallum Capital Advisors.

So I just had a follow-on question on the shrinkages. So as they have been pretty high this quarter, are we expecting the number to be similar for the complete year as well? Or it would be probably on the lower side?

See, the shrinkage has to be looked as a provision. It is not really a write-off, and it is just creating a cushion in the system so that in case there is a future eventuality for giving lower margins or selling some amount of inventory at lower prices we are well cushioned. So that way, it is just a buffer. We do not anticipate shrinkages to go up. We will definitely -- we will want to keep the controls well in place, checks and balances in place, so that shrinkages do not go up at all. As I said earlier, the percentage of shrinkage or the provision that we are looking at is, again, because of the top line is slightly lower in quarter 1. And therefore, as a percentage, it is looking very, very high. We will definitely want to retain the overall shrinkage percentage [Technical Difficulty] 1.5%, which has traditionally been our range for last couple of years. This year, because of the lower top line on a total aggregate basis, this might go up to around 3%, 3.5% on a full year basis. Otherwise, on a normalized scale, we will still want to retain the shrinkages well under 1.5%.

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

Thank you, everyone, for being on the call. And these are testing times, and these are difficult times, also challenging times in terms of management bandwidth and the kind of decision-making that we need to do, not -- create different processes, look at opportunities of incremental benefits, look at change in processes, newer culture, newer ways of doing businesses. So yes, it is definitely also very interesting times. A lot of elevations are coming in. But yes, very, very hazy times in terms of forward-looking. So definitely would request all the investors to pitch in and give us information or give us some note on anything that you've seen about the market, some analysis that you've done about how are you looking at the future, the next 3-month or 6-month period. It will be really helpful. You're all our partners. So -- and we'll try to really create a good forecasting mechanism, so that we don't lose up -- the biggest risk for us will be inventory. We will be definitely watching out for inventory, even if we do a little lesser business in the coming quarters. So -- but yes, we'll keep our eyes and ears open and create value for an entire ecosystem. Thank you. Thank you, and stay safe. Bye.

Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.