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

Ladies and gentlemen, good day, and welcome to V-Mart Retail Limited Conference Call on the Acquisition of the Unlimited Stores hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Percy Panthaki from IIFL Securities Limited. Thank you, and over to you, sir.

Hi. Good morning, everyone. Welcome to this call on the acquisition of 74 stores of Unlimited from Arvind by V-Mart. We believe that this is a very important milestone in V-Mart's life because it gives them access to new markets that they were not present in and help them become a pan-India player. On the call, we have with us Lalit Agarwal, the Managing Director; and Anand, the CFO. So without any further ado, I'll hand over the call to Lalit to take us through the rationale for the acquisition and then we'll open up for Q&A. Over to you, Lalit.

Good morning. Good morning, everyone. Thank you, Percy. Definitely, this is a very, very big day and a very important decision for us, and definitely a big milestone that we have reached. For us, as you all understand, V-Mart has largely been a conservative player. We have largely been a retailer who have always been very, very cautious on the kind of approach that we take in terms of our plans. And as you all know, V-Mart has largely believed in cluster philosophy, cluster-based expansion model, and that is how we spread ourselves and we grew ourselves in the last 15, 17 years of our operations. And then every time, if you look at our map of India, we've always been near to the territory where we've been operating. We started with Gujarat, but we started simultaneously with Delhi and then we penetrated hugely into Uttar Pradesh, Bihar, Uttarakhand, and then moving our direction towards East Bengal, Orissa and in our case now. So this has really given us a very good density in terms of the cluster-based store expansion in those particular area, catering to that Hindi heartland and the Gangetic planes, which is very important to us. And that's what our belief has been. And there's a big market which is still there, which is operating. Somewhere, we always kept understanding that there is based on the opportunity, and as you know, the South India market is always a very, very attractive market in India. And this particular market where we have more -- a little more literate population, where we have a little more people who are aligned with their ethics and their culture more strongly. We know these people are not so show off-oriented. They are very, very grounded and more mass population and more styrene class population lives in this particular geography. This has been very, very attractive for very -- a lot of organized players since a long time. And so all of this has always been -- we have been always actively looking at this market, understanding this market. There have been a lot of success model from an organized or a semi-organized frame of mind that we have always been noticing in this particular geography, whether those T Nagar stores of Pothys and Saravana, and those large-size stores, which are operating in those markets, which are feeding into those masses or there are multiple such format, whether in Andhra or also in Kerala and Karnataka. So there has been this success and then we have seen some success also coming in from the organized players like Max and Trends. So we are also always sensing that there's an opportunity, but this market has always looked at very differently. We always thought that this is a different India. And every time North Indian retailers would not succeed in South India and South Indian retailers, would barely succeed in North India that are the whole philosophy and our understanding. So we are taking a very, very cautious approach before getting into it. And as you understand, our cluster-based philosophy, we have already reached the tip of Orissa. We have stores in Berhampur. So from there, Andhra Pradesh or the borders are very less. And so that is how we thought that we should now enter into Andhra Pradesh or Telangana. And that's how the whole thought came in, but once you want to get into this territory, you grow at a one by one to opening up one-on-one stores. And there this particular competitive environment becomes more difficult to bring in that kind of volume, understand that customer base. So there are some challenges that we are noticing. And definitely, this is one transaction or one competition that we had the remain of Unlimited, which we were definitely in talks for 1.5 years and 2 years. And we have looked at this particular asset for almost 2 years. We have been exploring this particular property, their brand, their understanding, their business sentiment, their consumer base, their ways of working, their kind of product lines that they're offering, the locations that they have. So all those things we have been regularly looking at all those. And as you all know that we have been very open and always looking forward to any kind of opportunity which comes in. So we've always been focused on our key buildup model, and we have always believed that we could build all this. We never wanted to actually buy, but we never wanted to buy for a premium. But if there is something which is good, and somewhere we found that the team of Arvind, who are primarily a brand player, who are primarily a brand house, or a fabric company has a very good understanding of fashion, a very good understanding of product, and very good understanding of fabric. Somewhere, the whole culture in the organization was more brand-oriented. For them, driving value with the ethos of value retail, they were also struggling and there were some problems that they're facing and they are trying the Megamart base and then changing it to Unlimited. So this particular venture, I had multiple rounds of talks with in Sunil LalBhai, the CEO, sales and that is done by Suresh. So we were always been in the debate and understanding what is good and what is bad, how could we improve it. And we found that there is really something which was attracting the kind of locations that they had, the kind of team that they have, the kind of business model they built. So there is definitely an opportunity wherein we could successfully acquire 74 stores and this time that when we talk. And we understood that it is coming on our terms in the way we would open up a new store, the way we look at a new store, the kind of investments that we do for a new store. We just wanted to do it as like getting into a new property. So that's how we have taken it right now, but we are paying almost -- we'll be paying almost INR 150 crores for the 74 stores. And I want you all to understand, these stores are similarly average on around 10,000 square feet compared to an average size of 8,000 square feet of V-Mart. So it is almost similarly sized. There are some stores which are a little over sized, if we could try and see how to be size up or how to look at those concepts. But otherwise, most of the stores are around 10,000 square feet. There are -- most of the stores are on high streets. There are few stores which are also operating in malls. So we would definitely look at all those things. Understand there is some differentiation compared to how V-Mart works. There is some little changes which is there, both in the consumer segment as well as the kind of towns where they are present. Largely, we are not present in Tier 3, Tier 4, but they are present also in Tier 1. Even V-Mart is presented in Tier 1, but definitely, these are bigger towns, bigger cities like Hyderabad and Bangalore. But yes, there is a great opportunity because then when I look around these cities, I found a lot of the youth, a lot of young families who has in the income growth who want to aspire, who want to look good, who may not be able to still spend those kind of money because Unlimited's average selling price is still INR 550 and whereas our V-Mart's average selling price is INR 305, INR 310. So for V-Mart, definitely, we need to -- we are inching up, and we are going on our average selling price. For Unlimited still they are on the higher price segment. So we need to balance out a little bit. We are seeing a great synergy coming in because we are already present in 19 states, and these people are present in 7 states. So combined together, we now come up into 25 states. And no city, no state is getting the colab -- there's a great integration. There's no city where we are in competition. So there is no town where we are in competition. Only state is Gujarat where we are present in Ahmedabad [indiscernible], [indiscernible] and some other cities, but they are not presenting those cities, but they are only present in Surat. So it can really become a very good thought process. We will use all their properties. And a very good thing is, over the last 3 years, the team at Unlimited led by Himanshu, they've been very, very particular about how to drive value, how to drive out all those nonprofitable stores. They've already cleaned up the property. They cleaned up the asset. All those stores which were not functioning, not operating well, not profitable has been already exited, and they have already come out of those stores. They have come out of all those old inventories, they've come out of their own highly expense model. So they have really made it slim. From here onwards, it will be easier for us to -- definitely, there is a lot of change required. There'll be a lot of value-driven culture, which has to come in. There will be change in assortment, there will be change in merchandise. There will be some change in the way the whole store is looked at. Initially, what we understand Unlimited have always looked at the store as from a brand perspective. So they always relied on private label brands and the whole display and the whole philosophy of the retail was primarily around brand and what we thought and we think this particular value retail is largely about price, MRP, assortment, style, customer persona. So that's the fundamental that we bring in. And we -- as our customer centricity is the key thing that we drive and prudence is another value, which is very important to us. And when we say prudence, we proudly say, prudence is something which is required by our customer. And then we are there because of our customer and we'll deliver what my customer wants. And our customers can't pay too much of money. So that is how our whole operation and the way we operate both our vendor base as well as our product designing and products utilization or even our operational parameter has to be very prudent. That's how we see values could be driven. Once we are able to sustain and give -- drive that value to our customer. And when the customer realizes, it is going to be the same similar customers' loyalty that we will attract -- as we are attracting in the Hindi heartland of Uttar Pradesh, Bihar, Jharkhand, Uttarakhand, Madhya Pradesh, Rajasthan. So we are quite very confident but there is a good turnaround story which could come in over the last 1, 1.5 years. This team has also really worked very hard on the cost structure. They have also come down -- brought down their breakeven point. And I think for us, it requires only some push and some change in the overall strategy. And some strategy of growth, itself is a strategy, where the team gets motivated where there is a scope in the marketing where there is a scope for the brand. And then there will be a change. Definitely, we will look forward to the single brand concept we have. We will be very focused on what we do till today. We have always relied on one brand, which is V-Mart. We've always relied on one kind of model, which is our value concept, which is our fashion design value concept model. And that's what we will still focus on. But as you understand, because of our cluster philosophy, we also believe that every store, for every 100 kilometers are different audience, different payers, different culture, different faring pattern, different philosophy. And that is how we seeing are store offering -- our store product offering and product assortment and the communication plan. That is how we will take up the South India operation also. We believe there are different cultures within South India. There is different faring pattern within South India. And the team at Unlimited, the team that they have, we also take over those -- that team who already know about this business, already know about this particular geography, about the taste of the customer, about the kind of seasonality, which we are affected, about the kind of product which gets sold, and there's a huge database -- customer database that we are ready to use. There's a great skilled manpower available at the store, which could be used in the right direction, could be brought in with new force and new energy also. There is a good opportunity for us to also grow stores in these particular territory with the base of 74 stores of warehouse, office, we are really set to go and then conquer the Southern India because there is a lot of penetration, which is possible in Tier 2, Tier 3 towns in this particular part of the world. It was still the kind of competition, which is available in Tier 2, Tier 3, whatever our study says. So there's still a lot of scope because the 30% gap that we versus a Max or Reliance Trend or a Pantaloon has -- will make a lot of difference for the customer base that we will be catering to. So we will be scorching and searching for those customers who have been our loyal customer, who understood V-Mart brand very largely. And we will take the same effort to try and understand their culture, their requirement, their pain, and their value orientation, which will attract them to buy some kind of store. It may take some time. We take this asset not only for 1 or 2 or 3 years, but we look at it from at least 5-year perspective. Definitely, I would request every analyst as the -- investors on this call to also have patients with us give us guidance, but don't expect too much of result immediately that expectation that I will tell. We will definitely want to give at least a year for us to settle down, understand, and make our strategy reach the audience. And customers will also take some time to understand the brand, the changed brand, the changed offering and so that they could now start trusting more to the new concept till the time is launched. So we will definitely be agile in our process. We are committed on our thought process. The team is excited, both at V-Mart as well as Unlimited. We will be very, very important for us to look at the success of the integration. Definitely, there is an integration, which is there because we are acquiring the team. We are taking over the team. We are trying to not -- we are ensuring that we don't lose in a single people out of the whole process. We are ensuring that there's a good collaboration, which happened. And there are a lot of good resources here, which could be also used for our V-Mart overall India business. So that's how we are looking at it. There are -- there will be a lot of questions and a lot of analysis and a lot of surveys that we will do to come to some of the strategies. But right now, for the next 1 season till the festivals, we will want the team to operate the way they are operating, and we will just want to help them to just achieve more than what they have done in the year 2019 because last 2 years have been disturbed. So year 2019, we want to grow from there. That's how we are targeting right now. There's a lot which will come, and we'll keep talking over it. But we are very, very open to a few comments and a few feedbacks or doing some questions that we have, I'm ready to answer those. Thank you so much. Open the house for questions, please.

[Operator Instructions] The first question is from the line of Tejash Shah from Spark Capital.

Lalitji and team congrats on the acquisition. Lalitji, I'll first start with the question on which you briefly touched upon and we all, at least, I believe, that we have seen V-Mart as a very pragmatic conservative retailer in the country, which has survived the test of time. Now philosophically, how should we see this acquisition changing our stars on that conservatism? Because in past also, when analysts have ask you these questions and on aggression coming from regional players, and we have always said that there is a huge opportunity. There is no need to be in haste. From that perspective or from that philosophical standpoint and now this acquisition, how should we see whether this stance has changed? Or is it just a part of broader vision when the changes on conservatism, but it is value which was there to be grabbed and grabbed it? So just wanted to understand philosophically, first.

Yes, Tejash. Thank you for making up again. And my philosophy, most of the people on the call must be understanding. I remain very conservative and -- but I should be watchful on myself that too much of conservatism also doesn't help because ultimately, there is a large opportunity in India, and Bharat is growing. Bharat will grow. So that opportunity also, we cannot miss out. And for us, the next 5 years is going to be the big game changer and big game changer for India, for the consumption segment in India. We need to be prepared for that as we have been growing. We have always been growing at 25% at a CAGR level. And there is one step up that we need to take. But yes, I will not call it as aggression. It is a very, very strategic -- good strategic move. As you all know, we have been working towards building our processes, building our organization structure, building the technology on the backbone, so as to grow better and reach to more customers and more population and give them the kind of value and the kind of brand sales that we have always created. So it's a part of the strategy. We've always wanted to look up to. In today's world, definitely, when there are more value retailers now and every conglomerate was to get into value retail, getting right property and the right location in some areas was getting difficult to guide your brand image because ultimately being only in the northern side, we were a little regional player. We wanted to get into this, and this gives us a very good base. Believe me, the kind of investment that V-Mart will do when it opens a store, we are doing right now lesser than that. We are not acquiring any legacy. We are not acquiring any old stock. We are only coming -- buying their new stock, which is sellable and which is selling right now. So we are -- we have taken a very, very conscious call, very, very strategic call, and still conservatism is there, and it is a part of the philosophy. And definitely, this is a good asset, which was available. It is all about perception, the way you look at it. And I mean, the perception gets built because of the operation in the kind of team, and the kind of value systems, and the kind of approach that they had taken up. So I mean definitely, it is not going to be so easy. It is going to be challenging, and we definitely accept and we always accept challenging situations that we're going into a smaller town or a virgin city or a virgin area, we have always seen that from V-Mart, we have always taken those challenges, and we have always met our expectation there. This is how we will do it. We will work to offer this. And we'll try to prove that this is also something that we could do. And this becomes a very good initiative for us to get into this particular geography, which was very difficult for us to get in.

Second, Lalitji, you spoke about that this brand has been around, in fact, as of mind, we see that it has been there for 20-plus years. In fact, one of the first few retailers in India. And then it also got reinvented from Megamart to Unlimited and we have been -- multiple interventions by the previous team also was made to revive the format, but somehow it did not respond. So what was your read because you said that you were actually engaging with the idea for almost more than 1 year. So what is your read in terms of what can be done to revive the format? Or is it that the Southern India is slightly different market in terms of regional competition is very high as we understand versus perhaps East India or North India, where we operate currently. So if you can give some sense of why 20-plus years of history has not made a difference in terms of because the team was able then also to turn around the format and the competitive landscape in Southern India versus where you're operating today?

So Tejash, I mean, I will need more time to understand that. But yes, -- see, as I said in the initial part also and Arvind except that they're coming from a brand philosophy. The overall culture in the organization, the overall team in the organization, the building in which their offices are, they are all driven through brand concept. And that was -- that is not something which value retailer could drive. So there is some change in the thought process. Yes, they've tried this with Unlimited brand for the last 5 years. Within Unlimited also they have taken multiple view. And then there is some change that they started almost 2.5 years, 2 years back, called Saral and some part of that was successful, but because pandemic hit them and it was not possible for them to actually experiment that nicely. I would still give the team a good success rate. I do not want to be mettle with them. There is a lot of effort that the team put in, but there is definitely some understanding that we have got about value, about the procurement of this particular value product, about the pace of the customer, which is in the mass and the middle does. That customer has a little different taste, which definitely these brand players yet are -- have a difference of opinion on understanding the taste. So that's what is something which is key to V-Mart -- the team of V-Mart, which has been populated by the consumer themselves. Because consumer has taught us what do they want, and we've got that database, which is what we will implement. It is not about any fault. It is only about that particular small fabric -- the texture of the fabric, which has to be understood. And that is the really small difference. Whenever the customer starts feeling the texture, the customer is going to come and then trusting will come. And it is -- I can tell you it is very well managed, too. They have very good store retail, the team is good. I have gone through the stores, and I've seen that. It's only about the texture, the feel, the kind of product line that we offer and the kind of value which has to be offered, which is very, very important, as I always keep telling that even 5% or 10% price up for them -- pitch them. So that is what we have to do. Every money -- every money asked from the customer has to be proven. It has to be worth the goods. So that's what we will work on. We'll work on all those efficiencies, which will drive this particular business to profitable and successful. Thank you, Tejash.

Yes. This will be the last one. On brand, the new reserve brand as a Southern India brand or when you cross pollinate, V-Mart can be at a much entry price point level and Unlimited, you can play at a slightly premium level? Or both will have a geographic area defined and they won't step into each other's area? How would the brand progress from here, both the brands?

Yes, Tejash, as of now, we are very clear and very focused on -- and we don't want to step up on 2 boats. We will remain on our boat and we will definitely only focus on V-Mart, and we will try and change this brand Unlimited Stores to V-Mart. It may take some time. We will not give a jerk reaction. In the meanwhile, we'll also do some survey. I understand what the Unlimited deals, how well are the customer connecting to it. But largely, we want to make one vision, one brand. We want to only focus on one area. We don't want to be focused. We don't want to have different strategy. There can be strategy at the store in terms of the offering, in terms of the communication, in terms of the ways of services that is given, but not from the product, not from the name itself. The name definitely has not given so much of benefit to Unlimited team or the Arvind Group. So I don't think it has been very profitable from this name. So I still -- there will be some risk, and there could be some time on some marketing money, which has to be spent. But largely, it should be customer-driven. And once the people find the value, it will be a more publicity, which will drive even if you can make V-Mart brand much more stronger than it is.

[Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum Capital.

Lalitji and Anandji, my sincere heartfelt. I mean, that's a congratulations from my bottom of my heart. The question I want to understand, yes, you have tried to explain, there is a change of thought in your mind and then you're taking a big risk. I just wanted to harp on what makes you confident? I mean, yes, brand is excited. You are getting into your geography and there is an opportunity which is there. But it's a u-turn from our strategy, which we have been harping customer strategy, getting into new areas. Of course, consumer is evolving, and we have been seeing the evolution of consumer in rural markets also. So I just wanted to understand what makes you confident? I mean, yes, there is the opportunity, which is good. You have got an asset at your terms, that's very good. But more importantly, what is it that you found that you will be able to quickly change the deal while the plane is running and then you will make success out of it?

Shirish, together we come to this market to excite you. So that how does this lungis turn into the denims and those dhotis turn into chudidars and pyjamas. So we will definitely explore. That's how India is moving. That's how the world is moving. And there definitely -- there's lot to be done here. And I still feel that the northern territory, the eastern territories, there is a lot of retailer who was working here compared to this part of the world. They are also evolving. They are getting everywhere. And there's no change in strategy. There's no u-turn sorry, but it is once again falling to our cluster philosophy. It is falling into that mass premium, basic value retailer philosophy. There's no u-turn, except the fact that, yes, 74 stores on a day we opened may be a little different from our strategy. But someday, we need to take that risk of acquiring more. As we have not done in the last 1.5 years, we have not opened too many stores, 20 stores. So backlog was also pending. So that's something that we have done. And I know the organization is very well steered to take up that, and we are also getting some additional team. So believe me, Shirish, definitely, it is not going to be very easy as you rightly said, on a running wheel, on a running plane, how we change the wheel. So there is going to be a little difficulty. We will definitely have to strategize it well. We will book that project plan, we will build and have them breakdown structure and align everyone together so that we are able to carefully do it. And then we will -- it is not that we are changing all the wheels. There are some 1 or 2 things that we need to better, which will definitely improve. It is the new season. I mean, definitely this particular festival season anyway, the whole -- the purchase orders, which have been raised by this team, those products will come. But from the next, let's say, summer '22, onwards, we will see some new range and we will definitely start giving customers not a jerk. We will not give them a shock, but we will slowly and gradually move more into value. So to provide them some additional stuff, give them some good product, give them the best of the services, which we not built in all our stores, and try to become closer to them, go closer to them, reach to those particular areas where still there are virgin towns, there are organized players itself have not reached. There is a lot of opportunity in those markets where we could go and explore and do our businesses. There may be some stores where we may fail. There may be some areas where we will not be able to succeed. And we will take those cores as you take for our existing property, or as you try to call for our new store that we opened up. Still, not all our new stores are so successful. So there are mistakes that we do while doing an organic expansion also. And similarly, within those 74 stores, there may be some stores which is not repairable, and then we have extremely failure. We will take that particularly, but the base is that this particular ground gives us an entry into this particular world. Wherein some of the stores that we are acquiring from here maybe have to get exited after 2 years, if it is not performing as per our standards. But tomorrow, we will replace them with new store and new additional properties, which is going to be very, very important. So that's what our thoughts are. And there's no magic that Lalit Agarwal or V-Mart team has. But yes, we will try and work with our own basic philosophy and our basic value system that we have.

That's a wonderful explanation. While I have a follow-up. Now you have more to chew on your plate with this acquisition. Does that mean stand-alone V-Mart, the growth in the number of stores and expansion, which we are banking on will take a backseat for the next 1, 1.5 years?

So that's the beauty, Shirish. So the team, right now, they have not taken any thing in acquiring these 74 stores. So the business development team, the product team sitting on that sense. Right now is on their job. They are still on their plan -- their business plan of trying to open 40 to 50 stores in this particular year. They are moving in their speed, this team, which is a different team, which has been working here. And there is a good team, which could also grow. We would need some guidance as we will integrate both the teams. And we will take the right call at the right moment definitely, from next year, onwards, the growth plan, as you always do, growing at 20%, 25% CAGR from a square feet perspective or revenue perspective is what we will see from a combined entity perspective. So if we had 200 stores, we used to grow 50 stores and then we used to go 250 stores where we used to grow 55, 60 stores. Now when we have 350 stores. We'll go a little more in terms of number of stores. That's how we will do, but we will take our time, consolidate, make this workable, make this profitable and then go for the aggression.

Okay. My last -- second and last question on the profitability part. We have seen that V-Mart has been benefited because it was non-metro markets and the rentals are cheaper. The skill set manpower is also at a lower end. While we see that 45% of the revenues of the stores are coming from the Tier 1 or maybe semi-metros for Unlimited. How this marriage is going to work on the numbers in terms of profitability? And then I'm looking some qualitative understanding because Unlimited has not made any money for hostile company. So what is it that you have a low-hanging medium to short-term levers, which you are banking on? And maybe if you can guide how this business is going to turn profitable? I mean, what were the time lines which you are looking. I mean, I do accept that you have a back-end sourcing and you have a very strong control on the vendor management and that all is considering. But if you can highlight some of the things which you think is certainly possible. Hello?

Yes. Yes.

Shirish, this is Anand. And, yes.

Yes. Have you understood the question? Sorry, I got blank in between.

Yes. Yes. No, no, I got the question, and I understand the apprehension that the cost structures and the revenue model will need to get tweak to a certain extent. But rest assured that we have spent a lot of time when Lalit said that we have spent almost 1, 1.5 years in understanding this. I think we have evaluated this opportunity from every angle possible before taking this very thoughtful decision. And it is not only in terms of new store expansion. It is also in terms of assessing our own capabilities, whether we can chew this new fruit or not. And to that extent, I think the very low hanging fruit that we are looking at is how we can maximize the efficiency of the existing running stores by small, simple tweaks, which can, let's say, improve the sales per square feet even by INR 50 or INR 100. That alone can make the difference between the already running profitable store level EBITDA positive stores to a slightly higher level of efficiency. Apart from that, I think there are multiple interventions that have already been thought through in terms of how we can change or how we can adapt to certain different forms of assortments or different forms of marketing or different forms of approaching the customer so that we are able to bring in certain more level of efficiencies. I will not want to really dwell into too much of details, but the simple thought that we have kept for ourselves is, if we can, without disturbing too much of cost, but if we can just inch up probably high about 10% on the sales per square feet and sales throughput per store, I think that alone is going to be the very, very big difference. And looking at the opportunity at hand and looking at our experience in some of the newer markets that we have already bought into in the last 2 to 3 years, namely, let's say, Northeast, which was a new virgin market for us and also some parts of, let's say, Rajasthan and other parts of Madhya Pradesh, which were also new territories for us and where we implemented some of these new measures that we have brought up in the last 1.5, 2 years, which is the value dial up and also the fashion dial up concepts, we are very confident that there are some changes that can be brought about in the medium to long term. We will not bank or we will not commit that something is going to change in 1 month or 3 months, but we'll definitely work towards a long-term plan to make it a very integral part of a one India, one V-Mart family and make sure that the throughput and the efficiency across the organization remains at our optimal level.

Our next question is from the line of Percy Panthaki.

I just wanted to understand your thought process on acquisitions. So we made this acquisition. Is the reason that we did not have a footprint in certain states and this gives us a footprint and that's the rationale? I mean, that definitely is the rationale, but is that the only case in which you would consider an acquisition? So supposing if you were to get an asset at a reasonable price in your existing geographies, would you consider that? Or would you say that for the existing geographies, your philosophy is to grow only via organic growth?

So Percy, as you must remember that we have been always telling one other question about inorganic route we've been asked, but we will never take in anything only for additional square feet. We will only take up something which is a kind of inorganic, when we get some additional strength, when we get some strategic strength whether in terms of the understanding of geography or penetration in geography or the team or the kind of know-how. So we are getting some of those because of their legacy on textile, fashion. The team that they have developed as it congratulate and the team at Unlimited. So developing a good team, which is a scalable kind of model. It's all about reaching the taste, understanding, giving them the input on the mass retail or the retail people on the customer segment and reaching the seasonality product lines, the kind of product we should offer, the kind of cost at which we should develop those products. And then otherwise, I think we see there is a team which is in place. There's definitely -- location where there's a lot of service, which is driven to a good amount of customers. A lot of customers are already there attached with that particular location and the particular store. And so there's a relationship with the team has. So there are a lot of those inputs which has compelled us. And in the past 3, 4 years, 5 years, I believe we have got all sorts of proposals, that there are all sorts of assets which were available. And we never jumped on to something, which is not beneficial on to us. So we are open, we are looking at it. But now we've got a good team. We will only focus on this. It was definitely from virgin territories, some states that we have to go in, a grab or at a time 74 stores, which could have taken the company another 1, 1.5 years or 2 years' time. So we've got 2 years of that time, which we would have lost while opening. And we would have also -- we also got that particular testing or the failure cleanliness because even when we would have opened, we would have also closed down some stores, where we would have also done some mistakes. So all those mistakes are now wiped out. And we are getting a cleaned up property right now, which we could just focus and bring in our value system and our philosophy to make it better. So that's the whole concept. It is not something that anything which comes to us on that particular area, we could have taken at the same cost.

Right. Got you. Secondly, just wanted to understand. See basically, you said that you will be rebranding these stores as V-Mart and I also understand that, I guess, the product portfolio would also change, right? Right now, they are selling some of your brands, et cetera, and you would sort of bring in your private labels, focused lesser on the brand, et cetera. So I just wanted to understand 2 things from this. One is, what would be the time lines for changing the brand name and sort of changing the portfolio and sort of apart from the regional taste and preferences are different, you will bring the portfolio in line with what is typically a V-Mart portfolio. So what would be the time line for these 2 changes? And secondly, how quickly do you think you can bring the store economics in line. So what I mean is, first of all, what is the difference in the sales per square feet between your stores and this what percentage different, how much lower it is? Secondly, the gross margin -- I mean, the loss which you have right now in these stores, will it be by bringing up the gross margin or the gross margin is already satisfactory, and you just need to bring up the sales per square feet and the operating leverage will bring it into profit? So these 2 things, please.

Yes, Percy. So I mean, definitely, I'm not a palmistry or a forecaster to forecast together. But yes, we will definitely inch up towards that, and we never give a jerk, as I said, and we don't want to give a jerk. So we will take time. We will do those changes primarily in the new season, starting next year, from calendar year '22. And this particular 3, 4, 5 months, balance, we will want to just explore, understand the incremental sales work on the integration, work on those collaborations, setting the processes, and then do those kind of changes. But yes, there is a -- the gross profit is in line, but largely it is more about the quantity being sold. We are more a volume-driven organization, volume driven retailer, and we want to sell more volume rather than focus more on value. So we will focus more on attracting or selling more to the same customer, or getting more customers and getting more cash numbers. That's what our strategy will be, but how do we drive more volume in this particular time. How do we bring in more customer frequency, how do we try and attract the relatives and multiple options that they are disclosed in. So we will focus more on getting the youth audience in the store because right now, we see there is some loss in youth audience, which is still we could explore very more of them, and we would explore getting more of young family wherein their kids we're offerings would get increased. So there's some strategy that we will use so that we are able to attract and give the customer a little more experience so that we will attract a little more customers who are still not being able to explore Unlimited.

The next question is from Mr. Resham Jain from DSP Investment Managers.

So just one question on the transaction terms. I think what has been mentioned is that there is certain contingent payment also on certain milestone being achieved over the next few years. If you can just give some more color on that, that would be helpful?

Yes. Resham, good morning. So there is additional payment implemented if there's a success in the brand or in the success of the stores. So what we agreed is right now the sales per square feet is a little low. And as V-Mart almost the sales of square feet per year is around 9,000. So what we agreed that above a certain amount of sales per square feet in the 74 stores start performing, then for the next 2 years, we will give them 2% of revenue and there will be some 1% of the revenue on third year. So something around INR 30 crores because we earn money out of this particular acquisition, in this particular brand, or this particular kind of sales in the next 2, 3 years. So that's the philosophy that we have taken up. There is no immediate cost right now. It is all variable, and it will really align to a particular benchmark when it is achieved.

Okay. Got it, sir. And sir, just another question is on -- you have highlighted in your beginning commentary because Unlimited has multiple brands within the store. So because a lot of customers, I have visited several stores in the past, there is a lot of affinity towards some of the brands within Unlimited, which have become popular over a period of time despite being a private label over there. How would you -- how will you manage such kind of approach of customers? Or will you keep some of those brands as well, along with the Unlimited stores within the store for some time?

No. So as of now, there are these labels which are available. There is a purchase order, which has been raised on these labels. As I said, we don't want to work on multiple labels. And then there is a various strength that they have on those product lines. We'll learn from those. It is more about the product where that has been delivered to the customer on those brand names. The moment we are able to deliver a better product or a similar product at a better price point, the customer is going to be sticking to the same. And as I have always been telling you that it is more on the store brands that want to rely on rather than relying on the product brand. So for V-Mart, the philosophy and for that customer segment, it is more about the stores of which you are buying, and it is not the label that you are buying. So our belief has always been that the customer should trust the brand -- the store brand, not the brand. So -- and definitely, there is a legacy -- our attachment with a label, which has been wearing day in and day out, and then that will remain for some time. And we will also not immediately switch over. But over the period, we will want to offer what is best coming out of V-Mart. And then that once again, the same trust is going to develop and a better trust is going to be developed for a much wider audience is what we expect.

The next question is from Varshit Shah from Pembroke Capital.

Some of my questions have been answered. Can I speak for the earlier comment that brand I think there were these case inventory issues, there are much larger than what we store, can you speak on the working capital plan? How is that different? And how will it change post acquiring these stores to the current V-Mart network? Hello?

Yes. This is, Anand, this side. There is no substantial change in the way we operate. I think from a business model perspectives, given the current set of stores and the current business operates in a very, very similar kind of structure. There may be some difference in the payable days, et cetera. But I think once we take over the business, once we take over these stores, we are going to indicate everything as per the V-Mart way of working. In any case, we have not taken over any liabilities as part of this transaction. So everything starts a fresh from day one and thereby, the working capital cycle, et cetera, should not be substantially different from what it is for V-Mart as of now. Because we have taken a very limited control of the investment in the inventory, there will not be any substantial difference in the days of inventory for the V-Mart company as a whole. And I'm not anticipating any big significant change in the overall way that we manage the working capital and cash flow going forward as well.

Ladies and gentlemen, that would be our last question for today. I now hand the conference over to the management for the closing comments. Thank you, and over to you. Percy, over to you.

Lalitji.

Yes. Thank you for -- everyone for coming on this call at a short notice. And we cherish this discussion, and we look forward to this discussion again. But it is going to be a very, very interesting move that we have done. And there will be a lot of involvement, which will go over in the next 1 year. Wish us all the best. And definitely, we are going to come out with good colors, strong colors. Thank you so much. Have a great day. All the best.

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