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

Ladies and gentlemen, good day, and welcome to V-Mart Retail Limited Q1 FY '22 Earnings Conference Call, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Krupal Maniar from ICICI Securities. Thank you, and over to you, sir.

Thanks, Mallika. Good afternoon, everyone. On behalf of ICICI Securities, we welcome you to the Q1 FY '22 earnings call of V-Mart Retail Limited. On the call, we have with us Mr. Lalit Agarwal, Chairman and Managing Director; and Mr. Anand Agarwal, CFO of the company. At this point of time, I will hand over the floor to Mr. Lalitji for his opening remarks, which will be followed by interactive Q&A. Thank you, and over to you, sir.

Good evening, everyone. Thank you, Krupal, and welcome to this call once again. Very, very healthy signs, and we are on the back of a very bad quarter as far as the people's psychological thought process and their psyche regarding the whole pandemic and regarding this whole what has happened with society and loss of life and loss of mental peace. That has been a big, big piece in this particular quarter and that has overpowered everything else, especially in this quarter as we had seen. So this particular year, we have seen this pandemic or this lockdown. Definitely, we have seen the intensity being the intensity of the cases as well as the awareness and the impact of the COVID was visible very, very high in the small towns, in the states where we operate. So largely, we have seen that the densier states have received more impact of this particular pandemic, this phase of the pandemic. And it has been really very, very demotivating, and it's really very, very concerning for people there because of the low medical infrastructure, because of the low administration outcome. And then overall, people had a very, very miserable period, which they went through. So we witnessed everything, especially the team had a lot of focus on serving the communities, serving the societies, serving -- taking care of the employees, being very close to the each and every employee, being very close to each and every family member of the employees, trying to help everyone who were impacted because of the COVID. And even in our immediate circle of influence, whether it is landlord or vendors or my customers or even my other stakeholders, we all got together to try and help. Wherever we did, we have done a lot of work on recognition of most of our employees, almost 95% of our employees are already vaccinated, not with both the dose, but yes, with single dose, but both the doses will be completed in the further months. So there has been a lot of grouping that has happened. We as an association also worked a lot towards helping the community wherever we could. But yes, the impact was high. So as the lockdown and the opening impacts were there in the smaller towns, we could see consumption also hitting, and we could see stress coming in, both from the customers point of view of income as well as the mobility of the customer or the traffic, and the traffic at the store or the traffic at the market and overall movement of people were very low. So this has impacted -- compared to last year's pandemic, this year, we did not see a lot of migration of labor. This year, we did not see people going back to their villages, the city crowd going back to the villages. So this time, the small town comparatively had lesser number of visitors or those people who used to come in there. But yes, this time, we saw even lesser movement from villages to cities because the transportation and everything was also impacted a lot and people had the real fear. So that was there. But yes, largely, post that, from June onwards, we started seeing a comeback. And there is a good comeback that whatever we saw versus May, we saw a good comeback in June and July. And the comeback in terms of the customer or the normalization in the society happened. And we could see people also getting tired and people also wanted some relief of that particular environment, which got created in April and May. So people wanted to come out, and we saw a good response coming out and the pent-up demand also was visible in the month of July, a little bit, but not too much. There are still areas and in this particular period, we actually experienced a very regulatory, very hard stand from certain state governments, especially from the state governments of Uttar Pradesh and Bihar, where we saw them still impacting the lockdown. Even as I'm speaking today, we have 2 days closed down, weekend closed down in Uttar Pradesh, which is the best days for our sale, Saturday and Sunday. We have still alternate-day operational in Bihar, which is also a very big impact, which is getting created in the markets of Bihar. So -- and Northeast and Eastern states still continue to have COVID rise and COVID cases. But there also, we are seeing some impact coming in. So the normalization has not been as good as last year. We are seeing some store days or the operational days as lower operational days. Even the timing restrictions are there. So overall, the environment at the -- at those markets have not become normalized in that respect. So the movement of people are restricted in that respect. But yes, the industry has taken it as positively. And most of the fashion industry, we see, the growth coming in, the customers coming back. Comparatively, because last year, it was a peak up -- the peak of the COVID happened during August and September. Compared to this year, we are seeing a falling trend and a very large falling trend and a high vaccination drive, which is helping the confidence of the customer. And the confidence of the customer and the employees or the market is still much, much better, and we could expect a better recovery in this particular year compared to last year. So that's what we expect. And that is what we are seeing also. If you could see the growth which has come in, in the V-Mart number compared to last year, compared to FY '20/'21, it is relatively higher. And that is what has been witnessed in the market. And overall, the market is behaving in all the areas, I think it is happening good. There are other good news. Other good news is on the market. Steel prices have gone up. The monsoon seems to be good. The agriculture income, this time also relatively looks better. But yes, this time, there is definitely inflation in hand. People have pressure on their monthly spend. They have their pressure on the monthly budget. Rise in the salary and rise in the income has not happened. People still are struggling with their budgets. So we are finding that very, very evident. The large part of the commodity as well as the fuel and energy, all have gone up. So all that is impacting the customer and that has also impacted the price of the products that we are offering. So we are also seeing growth in the price of the product because most of the commodity products that we have and especially cotton and synthetic yarn, everything has seen a very, very high growth as far as the cost is concerned. So that has been passed on to the customer, and we are seeing the -- even the average selling price growing because of that. So what I expect, it should normalize very fast. And we should expect the regulatory authorities also to behave little more normally. They -- I hope they open up the stores for all the 7 days and all the 30 days of the month. And then we see normalization coming in. Especially, I think post the Independence Day, we should see the normalization coming in, and we should see better days coming out, out of this. We are not -- we do still track the city-wise COVID cases. We have not seen any abrupt change in the COVID case across India. We are tracking that every day, and we have very close eyes on that. And we believe the vaccination drive is happening at such a good speed, and the acceptability of the vaccination is so large in the small town also, that should really help the prevention of the third wave. And we do -- we are watching on the third wave, but I think it is just going to be -- even if it is going to be, it is going to be cases, but not with very acute intensity of that rate. So -- and that is what we are seeing globally also, and we believe that should continue. So overall, at the organization level, we are bullish. We are on the attacking mode. We have done this new acquisition, so-called acquisition of 74 stores of Unlimited, which has also helped the motivation of the internal employees, internal team, the external stakeholders. The confidence level here is very, very high. People are much more geared up, and they are much more confident on meeting those processes. People are much more agile in their processes. We have adopted a lot of digitalization in the process. The team is really working very hard to try and bring back the business to the normal situation. And even the integration pieces are getting in place on the Unlimited team. And there is a lot of work which is happening. We are targeting a closing date of 30th of August, so that after that, we could take the handover of those stores after 1st of September. So that's what right now the target is. Most of the things are aligned towards that, and we believe we should be able to do that. And then we believe there should be good synergies, which would come in, both from what we could learn from Unlimited as well as what V-Mart's learning has been till now, which could be imparted to those stores which are operational there. So there will be a lot that will come up. We don't have too many updates right now on that piece. We'll not be able to share too many updates. But yes, as things go, we will definitely want to keep you posted on those updates. But till that time, I want Anand to give you a brief about the numbers, so that -- and then further, we can take up the questions that you have.

Thank you, Lalit, and good evening, everybody. It's been a COVID-impacted quarter, but also with the gradual opening up of the lockdowns, new store expansions and return of footfalls and sales as we have seen. But let me quickly take you through some of the key financial highlights, and then probably we can open the session for questions. So quarter 1 usually is a very strong quarter for us, normally accounting for almost 25% of the full year sales and almost 1/3 of the full year's profit as this is marked by full price sales and fresh summer collections coinciding with harvest season and marriage season and expedited spending patterns, with a strong recovery in quarter 4 of last year, just around Holi time. But the resurgence of COVID in April actually led to a national -- nationwide lockdown, which significantly impacted our operations. And as a result, we could get only about 49% of the operating days in the quarter, which were further impacted due to lower working hours, weekend lockdowns and other local restrictions. While April saw good numbers till about the mid of the month, May was almost completely under lockdown, and stores started to open only from June onwards, and that too sporadically, differently across the different states. As a result, while the sales grew by 127% over the small and COVID-impacted base of last year, but the doubling of customer footfalls and the combined increase in average selling price by 19% and 3% in average bill size signified a stronger feel of a consumer recovery. Our online operations also continued to do better during this time. We continue to build a stronger platform, streamlined operational issues and rolled out new digital tools to measure and improve operational efficiencies. A key ingredient for the success of our online initiative is going to be around hyperlocal delivery and using our store reach to reduce the time taken and also the cost of last-mile deliveries. This is an important initiative and will pave the way for operational economies in the long run. While our share of revenues from online is still around 1% but growing, but we continue to work towards to increase it to around 5% in the next 2 to 3 years. On the margin side, there has definitely been an immense pressure on raw material costs, especially cotton yarn prices and logistics costs, driven by oil prices in the last 6, 7 months. Keeping in mind that these are cyclical changes and not really short-term adjustments, we have strategically increased our selling prices to tackle this. This was done in a gradual manner since March onwards. And as a result, our gross margins for the quarter remain in the range of 31%, which is very similar to previous years. Inventory remains under control at INR 365 crores, which is 15% down year-on-year as well as 15% down from the last quarter. This has happened by way of more dynamic supply chain planning and actively working with our vendor partners to optimize the order placement and delivery cycles. At the same time, we have ensured regular payment to all our vendors -- vendor ecosystem to ensure that there are no future disruptions in supplies due to COVID and also to mitigate any possible commodity price shocks to the extent possible. Fresh ordering for the new autumn-winter season is in full swing, and we remain optimistic on a stronger recovery as we move along. Shrinkage numbers, which include write-offs and provisioning, climbed up to 4.9% of sales on a very low sales base. While as a percentage of inventory, this remains at around 2%, 2.5%, which is in a comfortable range on an absolute rupee basis, while in percentage terms, this may still look a bit on a higher side. On a conservative side, we continue to carry additional provisioning that we had created a year back against COVID-related contingencies. Coming to the cash side, we remain pretty comfortable on the overall liquidity situation, absolutely aided by the fund infusion in forms of QIP that we did in February. We did around INR 36 crores of CapEx and opened 3 new stores and also invested in land for a new warehouse, which is being set up in around Gurgaon. We closed the quarter with a total of 282 stores, and we continue to remain optimistic on the overall growth opportunity, and we'll keep investing in new stores at regular normalized pace in the coming year, although with the caveat of pandemic disruptions not being ruled out. Coming to the expenses side, as you all know, largely our costs are fixed, especially manpower and rentals are the big -- 2 big components of the P&L. And there were no major cost reductions this time unlike last year. Manpower, there has been no reduction. On the rental side, I think we are looking at very small but marginal relief from the landlords for 2 reasons. One, because the lockdowns this year have not been as long as last year. And also, there is a much greater reluctance in terms of passing on concessions this year as compared to last year. In terms of electricity expenses and marketing expenses, I think these have largely been in line with the sales. The marketing has been more focused on digital, which is also in line with our focus on spreading the online part of the business disproportionately. As a result, the overall expenses for the quarter were broadly in line with sales, but higher than last year, owing to lower reductions, which is also important to keep the growth momentum strong in view of the upcoming festive period, wherein we continue to remain buoyant. As a net summary, the quarter ended with INR 2 crores EBITDA loss, which was almost INR 4 crores lower than last year. But on the future outlook, we still remain cautiously optimistic as we continue to look forward to a stronger customer come back. As Lalit just mentioned, July has started well. And in fact, even August is looking good with the only subject of local restrictions by government -- state governments being more relaxed now that we are hoping for, which will pave the way for even more normalized working. So even now as we are seeing complete lockdown in UP for weekends, which has now continued for more than 2 months and Bihar and Jharkhand, not just Bihar, but also Jharkhand has local district level differentiated notifications on lockdown, which is impacting operations significantly. Therefore, we will continue to be careful while also being cognizant of the strong tailwinds in terms of near normal monsoon, increase in the product ASPs, reflecting the customers' changing preferences, wherein they were downtrading to a loungewear last year and this year, there is a clear message where more normalization in terms of customer preference is being evidenced. We are planning for a near normal festive period ahead, and we'll keep a very close eye on day-to-day developments on the pandemic front to avoid any surprises. So that's all from my side. I now request the moderator to open the house for questions. Thank you.

[Operator Instructions] We have the first question from the line of Percy Panthaki from IIFL.

Sir, my question is, again, on normalization. And I'm just trying to figure out what is necessary for normalization to happen? So -- your -- you had 41 -- 49% lower operational days versus a normal sort of quarter. But your sales was, I think, on a 2-year basis down 61%. So is it just that if 100% days are operational, you will get back to that INR 8,500, INR 9,000 per square feet kind of run rate? Or in addition to just the restrictions not being there, is there anything else also that is required? So let's say, hypothetically, if Q2, there are no government restrictions or local body restrictions and you have 100% of the operating days, and in fact, even 100% of the operating hours, do you think that the sales per square feet will return to normal immediately? Or do you think it will take some more time for that?

Yes. Percy, good question. So let me just remind everyone. So this definitely, what you are seeing as 49% operational days, any store which has even been opened for 1 or 2 days, we have considered it as opened. So there are a lot of stores where the timing of the day, largely in the Eastern part or Northeastern part, the timing of the store was also constrained, and they are operational only for 4 hours. Some days, it was operational for 6 hours; it is operational for morning hours. So all those things were a part of the piece. But right now, whatever if we look at the store base and the store hours, the sales per square feet from the store hour are much higher. So we should get that immediately back. It is not only the operational of the store hours, but it is also a big signal to the customer base for their movement and for their business normalization. So it is a big -- it is just not a big indicator or just not a big point where customers can come in, but it is also mentally a big comfort for the customer base that things are normalized, we can now go out.

Okay. So basically, if there is no further worsening of the COVID situation, in Q3, we should have sales per square feet at pre-COVID level?

Yes, yes. yes. We expect that to happen, and it should happen. Because see what happens is, even the operational days, my weekend is closed, so Saturday, Sunday, which is primarily you all know, that contributes a much higher percentage of sales at a per day level. So that -- the important days, which are the holidays for customers, if those are closed, what you get is normally a lower outcome because all the impulse shopping happens only on those days.

Right, right. And also, would I be right in assuming that if your sales per square feet comes back to pre-COVID levels, then the margins that we used to do pre-COVID at EBITDA level, debt adjusted, used to be like 8%, 8.5% kind of EBITDA margins. So do we see those margins also coming back simultaneously whenever the sales per square feet comes back?

I don't think there is any change in the expense level or anything. What we are seeing the gross margins have also come back. So there should not be any struggle if the sales have come back.

Understood, understood. Secondly, sir, since now this COVID is now almost behind us, hopefully, what will be your plans for store expansion? And see FY '21 was a little subdued. FY '22 also, I don't know, maybe slightly subdued. So would it be that to catch up with these 2 sort of years which are slightly on the lower side, would we see FY '23 store opening higher than normal, so that over a 3-year period, whatever you had planned to earlier achieve, you will reach that kind of number? Or would that be -- I mean, you would not do that?

So yes, Percy, we are not tweaking our expansion plans, neither on the offensive nor on the defensive. So we will continue to run at the same pace. There may be some small adjustments here or there. But whatever we increase, I think the overall trajectory will be that we will want to increase our retail space by 20% to 25% year-on-year. There may be small plus or minuses, but otherwise, I think we would like to maintain the same trajectory even for FY '23, even with the COVID situation being where it is today.

Okay. So basically, because, let's say, we lost out on growth in FY '21, it's not that we will compensate for that by having a higher than that 20%, 25% number in one of the years?

Percy, South India expansion is expected to compensate for that loss of sales.

The next question is from the line of Nihal Jham from Edelweiss.

Sir, 3 questions quickly from my side. First is on the ASP. You mentioned both aspects that we've taken a price hike and ideally, this time around, we are seeing lower sale of athleisure or some of the other more value-focused segment. So would it be possible just to give a bifurcation about what proportion of price hikes have you taken? And what is driven by more normalized buying? Because even in our pre-COVID times, Q1 generally used to have a realization of around INR 265 to INR 270. And this time, we are seeing that it's close to INR 300. So that would be my first question.

So Nihal, the price rise that we had taken was roughly around 5% to 6%, but it was not uniform across all product categories and all departments. So it is a very carefully studied and carefully implemented price rise. But yes, I may not be able to exactly quantify the impact of the sales mix in terms of the change in the different product categories. But in terms of price rise, it would be good to assume around 5% to 6%.

Sure. That is helpful. Sir, the second question was on the inventory side. Now, this quarter may not be comparable in terms of number of days because of the lower availability. But I just wanted to get a sense that on normalized basis, how many days of reduction are we targeting? And would that mainly be in terms of the inventory lying in store? Or is it more the back-end warehouse-related inventory that we are targeting to get more efficient?

So Nihal, we are actually not targeting any reduction in inventory. I think the way we are looking at it is because it is a very dynamic situation, we would want to be a little tight-closed in terms of planning for extra inventory. So we are ordering closer to what we feel is the festive or the season. And thereby, we will want to keep a very tight leash on what is out for ordering. In terms of the overall inventory days, if you remember, traditionally, we have averaged at around 80 days or so, and that is the range that we will first want to come back to in the normal times. But if you look at the numbers in terms of how the inventory has moved in the last 1, 1.5 years, we have always tried to keep it very consistent with the kind of sales that we expect in the following 2 or 3 months.

That's helpful. Sir, just one last question from my side. I see that there is obviously a lot of focus that we are putting in terms of putting the point across of us driving our omni initiative. And if I juxtapose that with the fact that we are still looking at, say, 4%, 5% contribution from omni over the next 2, 3 years, which is a reasonably decent increase, but not a significant ramp-up that we are seeing. What I just want to get a sense on is that in the target market that we generally work, in UP, Bihar primarily, is it that we are seeing a very fast adoption of omni initiatives that is maybe wanting us also to ramp up on these aspects? So just your thoughts on that, that is it on ground post-COVID, these markets are seeing a much faster ramp-up on the omni side, and that is why we are also wanting to move ahead of what the pace we were initially planning for.

So Nihal, as such, definitely, the customers' adoption rate of technology and the acceleration over the online shopping definitely has been helped by the pandemic and the lockdowns. And that has led a little change in the customers' habit and consumer habit. And we could witness that change during those lockdown and during those times when people could not travel and come out. But now as soon as we see the stores opening back, there's a massive drop in the customers' footfall, the kind of people who come on the platforms. So it is purely need based, which is getting driven. And as soon as people are finding it normalized and they want to come back, they want to come back to the store offline, enjoy and adopt. As far as our omni approach is concerned, we are not only serving those markets where we are present. We are serving to the entire India. And everyone from the entire India is ordering to your best of knowledge. For us, the third or the fourth best city where we are getting the highest order from is Mumbai or Hyderabad. So that's the kind of cities which are adopting our products more and then they want those kind of products. So omni drive is definitely one we want to drive it for our customers, but we have opened our portal for everyone. So there are customers who are also coming in. It only -- drive is largely to get ourselves prepared, be there in terms of the technology, in terms of the process, in terms of the people adoption, in terms of our store understanding, in terms of the inventory management, the product definition, the product cataloging. Those are some of the learnings that we are developing, and we are digging that up. We are not very aggressive on this. We don't want to lose money. You all understand that still the online business is a great money loss business. And then we have not taken that clearcut path on using those money. We have been very, very stable in our approach. We are driving organic traffic. We want the customers who've experienced our portal to come back and then see. So there is no huge change that we could see post-pandemic in the markets of UP, Bihar as you were asking.

The next question is from the line of Shirish Pardeshi from Centrum Capital.

I have 3 questions. When I look at the footfall over last year, say, FY '20, you have reported 393 million footfall. Now if I average that, the average footfall could be in the range of about 30, 31. And now you are saying that your quarter footfall is about 31 lakhs. So is it largely dependent on the -- because around 65%, 184 stores we have in UP, Bihar and Jharkhand, and this area was largely disturbed. So is that the way one should read? With the opening up of economy, there is a heightened or there is a strong revenue momentum, which will happen around festive season?

Shirish, it's not just a numeric number of footfalls which just translate into sales. I think the message there that we are hearing from the ground is that there is much more increased customer activity in the markets, and that is getting reflected in the footfall numbers. On a per-store basis, the numbers may remain, again, very different because, again, just, as Lalit mentioned, there are local restrictions in terms of timings and different geographies. Some stores are open from, let's say, 8 in the morning to only 12 in the afternoon and sometimes they are open throughout the day, et cetera, et cetera. But I think the bigger message and I think the answer that you were trying to seek is, yes, we are seeing much more positivity in terms of consumer behavior. It's not only reflected in the number of footfalls. It's also reflected in the bill sizes. It's also reflected in the kind of product that he's buying and also with the kind of confidence that he is coming out and wanting to visit stores even during June and July.

So what I understand is the positivity rate what you are mentioning or referring on ground has gone up substantially in the month of July. That's the way to read?

I would say yes. Yes.

Okay. All right. My second question is just an observation. We have seen a sharp increase in the employee cost. Could you have -- spend a minute to explain why it has gone up so much?

So the employee costs have gone up because of 2 reasons. Last year, we were definitely caught off by surprise, and it was a very extended lockdown. And thereby, we had taken measures to look at how we can curtail and reduce our cost and which included removing the variable part, the incentives and which also there was a pay cut that we had done last year, which is not introduced this year because the stores were shut only for a limited period of time. And most of the cases, it was also sporadic. It is not a regular lockdown for 3 months or 2 months. And thereby, the kind of flexibility that we had to reduce the employee cost was also very limited. And we also did not want to do a lot of cuts this year, keeping in mind the customer response that we are getting and are aspiring for, and because we are in a growth phase, so it is definitely far more important to keep the employee motivation at a much higher level and not just work on cost restructuring.

I do understand, Anandji. What I was trying to understand, if there is a variable part and if the normalcy has not happened, and if the run rate is -- per quarter is about INR 35 crores, INR 34 crores, will that run rate once the normalcy comes back will go up or will be remaining at the same level?

Shirish, there is some cost, which is -- which we have retained, which is permanent in nature, which is more efficiency building and resizing and recalibrating or relearning the efficient ways of operation. So those will be something which will remain there even after the normalization happens. But otherwise, definitely, we did not do a lot of recruitments and that will only begin when the festivals are on. So we'll see some growth coming in at the cost level. But at the percentage level, we should see a downward trend coming forward. But yes, still in spite of all this lockdown and pandemic, the minimum wages rise has also been there. So we have seen a great rise in minimum wages also in this particular year and also last year. So that impact is also coming on to the books.

I got that, Lalitji. But I'm just saying that will this substantially go up because if I look at the percentage to net...

No, it will not substantially go up.

It's about 18% now, which is very high.

No, no. That is the percentage because the denominator is low.

Okay. Now, I got it. My last question is on the warehouse part. You did mention last time that we are looking for a land and now -- well, in your understanding or with your confidence, how much time you think your new warehouse will be up and running?

We should take at least 9 months to 12 months.

So it will come in the next year, that's what you're trying to say?

Yes, yes, before next year.

And if I may expand, with the new warehouse coming up, what kind of synergies you would see in terms of transportation, segregation, staff and maybe replenishment of orders?

See I think most of them have already been implemented even in the existing warehouse. But what we would expect is, we will build a larger infrastructure to handle the better or the bigger volumes and handle it faster because what is going to happen, the mine to market game is becoming very, very active. So here, the point is how fast are you able to react to the customers needs, to the variable environment that is coming up. So everything, it has to be just in time kind of model so that we can operate our stores at a lower base of inventory, and we could operate at the back end much more efficiently and effectively so as to create a speedy fashion and then a more fresher fashion to the customers. So our larger targets are those and our targets are also to reduce the cost at the warehouse, which is in terms of the manpower and all, so that we could bring in automation. And also, we have to see the infrastructure scalability piece, which is how do we scale up, and we don't need to clearly regularly do that. So once we have done it, it takes care of at least 9 years of our business operation.

[Operator Instructions] Next question is from the line of Aliasgar Shakir from Motilal Oswal.

A quick question on the recovery side. So last year in the first wave, impact was more in the metros versus Tier 2, Tier 3 towns versus this year the expectation -- the impact has been more on the Tier 2, Tier 3 towns. So if you could just share some color in terms of how are we seeing the recovery in metro, basically the metro stores versus the lower Tier towns? Also related question is, when I see your operating metrics, I see footfall has gone up and with that also the conversion and transaction sizes have gone up. Now I think last year, the narrative was that maybe if you are bunching on their shopping and therefore transaction sizes are high, conversion rates are higher, but footfalls are lower. Now footfalls are I think recovered, but still we are seeing the transaction size, conversion is holding up. So if you can just share some color on that as well.

So Ali, if you could just see, definitely, as we have been speaking in the commentary, footfalls are better so as the sales because we are seeing overall year-on-year [Foreign Language], we have seen 1.7% growth in our sales. And there is a growth in the footfall. But still the footfall versus the sales is lower. Still the sales are higher because the conversion rate is higher, the transaction size is more and even the average selling price has been higher. So what is coming up here is that the customer who is coming in is doing a better buying. He is converting more and he is buying more. But compared to last year, we are also seeing a good amount of customers coming in. So that is if we look at FY '21, but if you look at FY '20, still we have lot many customers who have not turned up, who have not come back. So those are the customers that we have to be very much waiting for and those are the customers that we are trying to drive them in because those customers -- there are a lot of customers who are not comfortable still coming out and who are not getting transportation. So that is what we are expecting, which will certainly bring back the existing sales.

Understood. And if you can just comment on how the recovery is in metros versus smaller towns.

Definitely, bigger cities have performed better, especially Tier 1 and 2. But Tier 3 and Tier 4, this time had got a little more impact, especially in certain geographies, as I said about UP and Bihar, where the lockdown and the restrictions are very, very severe. And they are not -- I mean, they have all stopped listening and they've all stopped reacting. So there are those kind of reactions, which is getting very, very disturbing in nature because they are impacting all the organized retail stores as well as the market -- retail market overall. So largely, the impact is largely being seen in Tier 3 and tier 4. But in certain states, all the tiers are affected, even in those states, the Lucknows of the world and the Patnas of the world also are not -- are not allowed to operate. That's the problem. So it is more a statewide call and also a tier-wise call combined which it is coming in. But yes, recovery in the bigger cities has been a little better.

Got it. Okay. And my second question is on this ASP increase. Anand, you said that you have taken 5% to 6% increase. Does that now fully cushion or have you fully passed on the cost simply? And I mean, related to that is, are we seeing any impact of this increase? I mean is -- it's quite overwhelming to know that in such kind of a market, you had the confidence to take a price increase. So just your thoughts on that.

Yes. So I mean, this is definitely one thing which we were also very scary of. And -- but yes, the price rise was so much that we could not handle it and we could not absorb it. So this time, for the first time, V-Mart have passed on the price rise, and we have done this price rise. And we have seen positive response because what we have seen because, as Anand mentioned, there are not all the items we have done equally. So we have also segregated that based on our sell-through rates and our customer demand rate and which will hurt the customer more and which will not hurt. So we have seen, especially products where we have taken up the price rise, we also bettered our quality and bettered our products from that perspective. But that the sell-through rate of those products have been very, very good because so -- especially the product which has been procured in this particular season, which are higher priced, we have seen a very good response. So that also gives us the confidence that the customer also doesn't worry about this small rise. And they all understand and they all know that is in the entire market, this price has gone up. So that is how they are taking it.

Okay. So the entire market has taken price increase?

Yes, because no one could absorb it. It is very, very natural that no one could absorb it because the price rise is so high.

[Operator Instructions] The next question is from the line of Girish Pai from Nirmal Bang Equities.

I just want to know how June and July have been in terms of revenue? Have they been equal to June, July of 2019?

Girish, that is still not a full recovery because if you are still seeing 2-day lockdowns in a week in UP and alternate-day lockdowns in Bihar, it cannot be a full recovery. But definitely, for the number of days that we are open, we are seeing almost near to or even probably more than the amount of sales for the equal number of days that were there in, let's say, 2019. Having said that, one must also not forget to discount the factor of pent-up demand. Just after lockdown opens, there is a phenomenon and which we have seen last year also and which we also saw this year, so there is some amount of pent-up demand which will lead to some unfounded euphoria. But so far, at least in the last 1.5 months, we are seeing a much more positive traction than last year.

Do you see any structural savings from a margin standpoint with 2 waves of pandemic hitting you and you handling it? Once sales comes back to normal, do you think that margins will go up structurally by, say, 100, 200 basis points because of the initiatives on the cost side that you've taken?

So Girish, you are right. This pandemic has taught all of us some lessons, and there will be some improvements in terms of our operational efficiency. There may be some little gains in terms of operating leverage, et cetera. But at the same time, there have been significant cost pressures because of inflation, commodity cycle price increases. And therefore, my sense is that I would not want to guide towards increased margin structure post-pandemic.

And lastly, the UP election is coming up in a few months. What has been your experience in the run-up to the elections? Do you see more money going to the hands of the consumers, resulting in better spending. That's my last question.

Yes, Mr. Pai, I think normally, this is what we have witnessed. And this becoming bigger and bigger. Elections are becoming an economic driver also. So we believe if election pumps in a lot of money in the market and brings in a lot of money in the market, so there are always activities which are rare. And normally, the beneficiaries are the recipient or the vote bank of that market. So there are a lot of disturbance which comes up when there are elections or before the election, which is in terms of whatever political activities happen or the rallies or the -- or some kind of [ rallies ] and some kind of lockdowns and some kind of problems, the protests, which are also a part of this. So there is some loss that you have before the election, and there is some gain that you have post the election.

The next question is from the line of Ankit Kedia from PhillipCapital.

Sir, my first question is on the loyalty customers. 60%, 65% of our revenues come from loyalty customers. In the current scenario, how is the movement of loyal customers? And what initiatives -- marketing initiatives have you taken to drive them to the store?

So good question, Ankit. And loyalty, I think, has been a big savior for all of us, and there has been a very good loyalty demonstration that we are also a part of. So we've got more than 65% of the customers -- or the sales coming from the loyal customers and customers who have been shopping from us. And that has been good. And we have also seen there -- there is a lot of work -- a lot of analytics, which is now getting into the loyalty piece, into the customer cohort and in their lifetime value or their annual lifetime value. So what we have now started tracking is how is the annual lifetime value of a customer, and how should we try and grow that lifetime value, and that is what the whole analytics and the campaign and the marketing is guided towards. So we have a lot of -- more than 20 lakhs of customers whom we are targeting so that we could increase their frequency and we could bring them back who are our VIP kind of customers. And there are more than 2 million database where we've got those customers who are actually -- who are regularly shopping from us and regularly coming in. So we are chasing them, motivating them, giving them a lot of insights and couponings, so that they are back to the business. And that is what has driven because, in these days, the marketing team did not have too much of budget for those ATL and those print ads and the TV ads. So is it largely driven by those either calls or one-on-one SMS, which have been delivered to the customers.

Sir, my second question is on the EOSS. As media sales would have started now, given the inventory is low in the system for us now, do you see more full price sales coming in and the gross margin expansion could continue in quarter 2 and quarter 3 because of that?

Ankit, you have to understand that we are post 2 lockdowns. So there were 2 lockdowns that we had in the last 12 to 14 months, and all the inventory which was bought even before the first lockdown is still there. Some of the inventory is still there. So we don't want to carry all those inventory. We have to definitely take -- get rid of those inventory also. So we should not expect a lot of full price sell-through coming in. Even if there is, as a percentage of full price sell-through is higher, but the impact and the margin loss which happened from the old inventory, which has to be discarded from the system, is also relatively high. And that is how you were able to see that also in the shrink. If you see, the shrink has gone up as a percentage of sales because the provision policies always allow the inventory to be discarded from the system as soon as it is aged. So that is how we are taking it. So we are focusing on both the sides, one, definitely driving more percentage of full price sell-through from the fresh inventory; and two, also discarding the older inventory so that we don't have a carryover in the next year.

Got it. And sir, my last question is on Unlimited, if I can ask on Unlimited. So in FY '20, Unlimited had around 90-odd stores with a revenue of INR 530 crores. Now given that the number of stores have become 74, would this INR 530 crores revenue would be the right revenue assumption for us? Or of these 74 stores, what would be the like-to-like revenue in FY '20, if you could just help us with that number?

It will be difficult as of now, Ankit. I would want you to restrict right now, and maybe you could take in a one-on-one call with Girish or Anand, so that they will help you.

The next question is from the line of Abhijeet Kundu from Antique Stock Broking.

So my question was on the revenue drivers during the end. Essentially, we have seen that there has been an improvement in mix, higher price. Fresher products have seen increased demand. Footfalls have gone up, and all the metrics have increased. What we understand from our channel structure is that the wedding season played a very good part during the end of the quarter and -- as there were a lot of wedding days in July and all the vaccinations have also happened and that creates confidence to the people. So one is wedding season and then the forthcoming festive season will also help going ahead. So am I right in -- is my understanding right on that? So we should ideally see continued momentum in that case. And in one of your key markets, I mean, East -- I mean the West Bengal part, there still restrictions -- higher restrictions are there. Many places have not opened up. I mean, restricted hours of functioning is there. So that will also leave -- I mean there will be more number of functioning hours we will get in over time. So East can also let you have [ pent-up ] in demand. So is that understanding right?

You're right, absolutely right, Abhijeet. And as you understand that India celebrates wedding very highly. The spending in the weddings are very high, and people definitely want to wear and want to look good when there are collection of people. But incidentally, still, the weddings which happened in this last 2, 3 months, whether in June or July, lot of weddings are canceled and some weddings which happened was very restrictive. In the month of June especially, weddings were under 50 people or under 20 people also. So that's the kind of weddings which happened, which is only largely with the wedding with bridegroom or bride family. In July, definitely, there was some relief and restriction opened. And there were some drivers which happened also because of the weddings. And we should expect that very huge number of weddings to come in, in the third quarter, especially in the December or the early -- late November and December month, where we should expect a good 25-day of wedding period. And a lot of weddings could happen, if situation is normal because a lot of people are yet to get wedded and they are expecting them to get wedded during those times. We should see a good growth coming in from that time, you are absolutely right. Festival is another very big opportunity, and that always will be an opportunity. This time, because in the last 2 years people have not celebrated festival, I hope people are allowed to celebrate festival as they were celebrating in earlier times. And if we get good Puja days and we get good Diwali days, and then that once again could be a good driver for the apparel business. Yes, I mean, Eastern and Northeastern states, as I've mentioned, there are still restrictions in place. For V-Mart, it is not so much of contribution coming from those particular states. But yes, I should expect relaxation coming in, in the times ahead. People will want to celebrate. But yes, we also have a risk which is associated with the government policy, where maybe the government policies as last time they did not allow the puja pandals to get celebrated -- puja pandals to get opened. If they allow the same thing or if the same thing happens, it may be a big deterrent in the overall consumption.

Okay. And what has been the reduction in lead time now? And -- I mean, as you said, and which is the right decision to make is having more of fresh products, cutting down the lead time between the -- within the ordering of products and getting it, making the orders closer to the season, all of that. So it will remain still dynamic, right? It's for this year. And then once things improve, we will go back to previous way of ordering? Or you have seen some structural process change -- you are seeing some potential process changes?

Cutting short, Abhijeet, there is some structural change that we have also adopted and the [indiscernible] piece also, which has kicked in. And there is definitely a need of this particular kind of -- this is not so peaceful. It is always -- the dynamics always involves a lot of complications and lot of confusion. So we are also developing some technology tool, and we have developed some so as to give the vendor a little more easiness to track those orders and get those pieces in place. But I equally have the empathy with the vendor because he is also in a big difficulty. And for him also, it becomes very difficult if we are not able to give them a sufficient time horizon for the plan. But yes, from where we are able to manage it, especially during these times when the festivals are there and winter season is there, the lead time goes up. But otherwise, overall, we have really brought down the lead time by at least 20% of the days.

[Operator Instructions] The next question is from the line of Himanshu Nayyar from YES Securities.

Most of the questions are answered. Just a couple of bookkeeping points. Firstly, on the CapEx front, other than the normal CapEx for store opening, how much would we be spending this year, mainly on this new warehouse and any other initiatives that we might have, if you can give a number there?

Himanshu, the new warehouse will entail a total investment of roughly around INR 100 crores, INR 120 crores in phase 1, out of which we have already done roughly around INR 40 crores. And now all of this may not happen within this financial year. I think in this financial year, probably it would be more around INR 40 more crores of CapEx on around the warehouse. Plus, we are targeting to open 40 to 50 new stores total within this year, out of which we have already opened 3 in the first quarter, and there are, I think, 6 more -- 5 or 6 more stores which have opened subsequent to that. So total CapEx on new store would be around INR 50 crores plus warehouse of around INR 40 crores, INR 50 crores. Plus, there is a big cash outlay that will happen in the -- on the acquisition of the 74 stores in South India, that should be around INR 150 crores.

Got it. Got it. And second point was on the other income bit. I believe there are -- there is about INR 2 crores of rental waiver that we have added on there. So if I adjust for that, then the other income looks slightly lower. So are there any one-offs there given the significant cash that we would be having at least at the end of June?

No, I think the other income right now only takes into account the income that we have got on the investments. The rental waivers have not really kicked in, in this quarter very significantly. They will come in whatever number will be next year -- next quarter.

Okay. Sir, can you tell about the current cash balance that we have on the books at least at end of June?

I think that's already there in the investor presentation, you can have a look into it.

The next question is from the line of Akhil Parekh from Elara Capital.

I have 2 questions. One is, are you seeing any specific trend in terms of the merchandise, which is getting sold, especially when we saw the demand going up in month of July and to the mid of 15th of August? So anything specific like marriage-wear or maybe denim-wear which is doing better as compared to other categories like normal wear.

So Akhil, especially, we've seen a very... [Technical Difficulty]

Sorry, sir. please go ahead.

Akhil, you're there?

Yes, sir.

We've seen good demand rise coming in from especially kids wear. Kids wear really has rose very well, and it has done very well. And other than kids wear, we have also seen demand rise coming in from casual wear, which is both casual shirts, T-shirts and women's, which are -- which have given a good rise. So we expect that to continue. But yes, wedding wear also has seen a good growth, but not too much.

Okay, Okay. And my second question is on the e-commerce part. Like, in a previous question, you mentioned that Mumbai and Hyderabad were the third and fourth largest cities for us for e-commerce. How is the processing happening for these orders because we don't have, I believe, fulfillment centers spread across India? So any plans around putting up fulfillment centers given we are targeting to reclassify for some of e-commerce sales in the next 1 or 2 years.

Yes. So we -- as you all know, that the Unlimited piece, which is what we have acquired now. So those ultimately will also be our omni centers, and they would also be our fulfillment centers going ahead. So we are now -- we will become a pan-India player. We will have those centers, which is near to the customer. Today, it is getting serviced by the nearest store from that city or by the warehouse itself.

Got it. Got it. Sir, just one bookkeeping question. If you can highlight average basket price for e-commerce, if possible? Average ticket size?

Average, INR 550.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to the management for their closing comments.

Thank you, everyone, for being on the call. I know this has been the second call in this quarter, and we will definitely keep talking more and keep meeting more. We have very, very exciting times coming ahead. Wish us all the best in the festival. In the integration plan, there are a lot of experiments that we have done. We really want to work hard and strategize well so that we are able to come out successful and meet you once again post this quarter. So thank you so much for being there. Once again, wishing you all the best, and have a safe day. Thank you. Bye.

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