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

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of V-Mart Retail hosted by Edelweiss Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nihal Mahesh Jham from Edelweiss Securities Limited. Thank you, and over to you, sir.

Thank you, Roja. On behalf of Edelweiss, I would like to welcome you all to the Q2 FY '22 conference call of V-Mart Retail. From the management today, we have Mr. Lalit Agarwal, Chairman and Managing Director; and Mr. Anand Agarwal, Chief Financial Officer. I would now like to hand over the call to Mr. Lalit Agarwal for his opening remarks. Over to you, sir.

Good morning, everyone. Wishing all, everyone a very, very happy Diwali and good festival days coming in. So wishing everyone a such and also a positive note where we have not seen too many -- too much of hue and cry over the virus. So it has been a very good festival time for everyone around India. So thank you for being on the call. Thank you, Nihal. I'm very happy to come on this call. On a positive note that things are looking better. Things -- market is bettering every day, every month, every week, and we are seeing a good response, week-on-week improvement that we are able to see. And especially in the last 4, 5 weeks, we are able to see much -- this pace continuing and also bettering every time. So overall, I think consumption is coming up. Consumption is -- has become better, especially in the Fashion segment, it has really picked up very well. It was also on the backdrop of 2 lockdowns and 2 bad periods. And where there was also a gap created for the consumers where their wardrobes were a little empty, and they wanted to now come and buy products for them, themselves and came out and show off. So I think also because of the fact that the virus is not coming back and the confidence and the trust that people have now over that -- over the little bit of stability over this period is also asking them to try consumption because people are now taking bets on if there's a wedding in the house, they would invite 300 people, 400 people. If there's a vacation that they're planning, they could go out, they could lead people. There is a -- transportation are almost becoming -- everything is becoming normal. Schools has started opening. Still colleges has not opened to that degree. But these are very good signs, which will definitely, which is leading into a better consumption opportunity requirement and also ultimately will lead into consumption. And as you all know, this COVID has really changed the perception of people, the life of the people, the way people look at their own living, the way people want to live. So today, definitely, in the past, what has happened is saving has increased, expenses have reduced. But I think in the coming future, the savings is going to be a little more lesser, and people will spend and spend for themselves and spend for their life and spend for what they want to do. So that's my basic understanding. That is what we are able to see. But yes, the same -- there is a small difference right now. In the smaller town, we still don't see that kind of huge growth in consumption. We did not see that in the Durga Puja period before September or around September. We are able to see that coming in the month of October and now November. But still, the amount of good growth or amount of -- the excitement that we are able to see in the bigger cities mainly Varanasi, Lucknow, Allahabad and Patna is not what we are able to see in smaller towns. So yes, there is a small gap. And I think there is -- this is a point also of how does consumer handle their pocket because they have -- they are getting beaten by the inflation trend. They are -- they have not earned too much. They have actually -- the lower part of the income group has actually lost some money in the pandemic piece, which they have -- they are down with. So they will have to make that up. And there are still some opportunities, some people are still not gone back to cities and their original place of work, that's also hitting into their pocket, their family income. So there are these -- some of these reasons, there has been some expenses in terms of mobile phone or a laptop, which is also being incurred because of their children's study and all. So even that is getting a share of their wallet. So -- otherwise, I think industry is doing great. The apparel industry, the retailers are -- we are getting good report as far as the organized trade is concerned. We are seeing a huge growth also by -- from the likes of the conglomerate or the likes of the whether it is Tata or whether it is Reliance or it is Walmart's owned online e-commerce or Amazon e-commerce. So there are people who are trying to pitch hard, pitch more into retail, absorb, acquire the market, get into the market little more faster. So we are seeing a good share of retail also going to them. But still, there's a lot of cannibalization. There's a lot of, I would say, density in the market now. And the people are -- the movement from unorganized to organized has also scaled up and that's how accelerated people are moving more towards organized because organized now is widely available in almost all the cities, big cities of India. So that's where we are. And then for V-Mart, I think it has been a very good quarter, I mean better quarter, as you all know, still not compared to the last year or pre-COVID level, we were down. I think the consumption is moving up. We had a great time. What we would understand here is -- no, for us, once again, having a very good inventory level, having a very good control over the product, having a very good understanding about the customer, the change in their customer behavior because of COVID, the change in the pattern, the change in the consumption of particular product line, what will work, what will not work, how much will that work? How much should we buy? What should we buy, has been really a big challenging situation. There's been a lot of ups and downs. There is been a lot of analytical, reanalytical forecast, APV forecasting activities, which have been happening around. And definitely, that's given a very good tough time and challenging time even to our leadership team, who has been -- who has come out very well. I congratulate my leadership team who has done an excellent job, handling these ups and downs, handling these in such a nice way, so as we have not been pooled into very high inventory or even the margins are consistent. On the other side, the integration on the Southern business, which is acquired by Arvind's Unlimited business, has been very good. I'm proud to say that our team did a great job in integrating the IT on the processes, on the people, and the team, very, very well done integration is what I would call, but yes, still, we need to integrate ourselves with the customer understanding, consumer behavior understanding the differentiated customer of that particular brand, the differentiated customer in that particular geography. We will have to really launch the product and the strength of V-Mart, which is yet to come. We have to integrate the brand image. We have to attract the youth, which is yet to happen. But yes, overall, we only operated 1 month in this particular quarter. And we're satisfied with the overall response because otherwise, normally, when you take over a business, your sales go down, process goes haywire, billing stops, customers are not being catered to, employees have recession. So we didn't get any of those bad news, and we had very good -- we didn't even lose a single hour of sales. So that's the good news that I want to give you. Otherwise, we will definitely take more questions in the call, but I want everyone -- every participant to restrict because we already have given to many of a update about the Unlimited business in the past 2 calls. We don't have too many things to share right now. But yes, we will definitely want to clear up all your doubts and all your queries on all this. Otherwise, I think, once again, the organization is consistent. There is very good news that we also have is the splitting off of my role, I'm -- I have to become more focused. I have now taken up the seat of the Managing Director. I have relinquished the post of the Chairman, bringing a better corporate governance, bringing the top in line corporate government thought processes, so that we have brought in our best independent director on this job, who could really do a better job than what I have done. So we have made Mr. Akash Moondhra as the Chairman of the company who is non independent or independent and nonexecutive director. And that's a prime movement for us. That's definitely something that not too many promoters and too many founders have done. But it didn't make me think multiple times. Ultimately, we need to reach the highest levels of corporate governance. That's our focus, and that's what we will want to do. We continue on our ESG drive. We are also looking at environmental sustainability, both very, very closely. Society and society development is also very, very close to us. We have been focusing on educating people, bringing capabilities -- building capabilities. We've also point up 2 skill development centers in the past. One -- North is in the Bengal. So we continue doing something which will also benefit our society, something which will also bring a space to us in the heart of the people where we actually earn. So that's where we are. I would definitely want Anand to take you on the -- from -- on the number side and the report side. Anand over -- hand over to you, kind, kindly go ahead and give the details about the performance of our business in the last quarter.

Thank you, Lalit, and good morning, everybody. Anand this side. It's been a good recovery this quarter. And with South India operations just getting started, we look forward to a very exciting new phase of growth for V-Mart. But first, let me take you through some of the key financial highlights from the quarter, and then we can open the session for questions. So primarily, the second quarter is a relatively small quarter with no major festivals or any major consumption drivers and is usually low on margins due to the typical end-of-season sale, liquidation rise, et cetera. However, owing to the extended lockdowns in quarter 1, the recovery in this quarter becomes important. While the quarter saw 95% of operational days, but it was still impacted by limited working hours contracted footfalls, lack of customer trust, at least in the beginning part of the quarter and also regulatory weekend closures in some states, which impacted the overall throughput. Despite this, I'm happy to share, we were able to achieve a growth of 8% over pre-COVID levels on a consolidated basis for the quarter, which also included a 7% contribution mix from the newly acquired 74 South India stores and 1% growth on a stand-alone basis only for existing V-Mart stores, so which is a 101% recovery over pre-COVID levels, which is FY '20. The increase in ABS or average billing size was 18% versus last year, which also denotes a healthy trend of consumer buying apparel, which is getting normalized versus last year, where more of comfort wear and home wear clothes were in demand, whereas this year, we are seeing more festive and occasion wear being sold, which signifies a deep-rooted recovery in the consumer mindset. The customer traction also has been steadily building up and the footfalls are now trending close to 80% plus levels as compared to 2019. On the margin side, while there has been an immense pressure on product sourcing costs due to at least 20% to 30% flare up in yarn prices, but we have been able to pass on the price increase completely back to the customer. The change in product mix and lower discounting has also led to a marginal expansion in gross margin or product margins versus last year. While they remain almost in sync with what we used to see at pre-COVID levels. On the expense side, keeping in mind almost full level of operational days, there were no major cost savings apart from onetime INR 8 crore rental concessions that we received this year on accounts of COVID as against a INR 16 crore concession that we received last year in the same quarter. Other than that, almost all other expenses remained at normal pre-COVID levels. There are no other major rent reductions anticipated in the next quarter as all operations are back to normal operating levels. There is a onetime -- not a onetime, but addition in expenses also due to the operating expenditure of the 74 South India stores, but which remain as per plan. And in fact, we look forward to rationalizing this and making it more efficient as we move along. Thereby, to sum it in terms of EBITDA, the quarter ended with 6.1% EBITDA at INR 21 crores as compared to an EBITDA loss of INR 4 crores last year and INR 11 crore EBITDA positive last 2, to last year in quarter 2 FY '20, which is pre-COVID level. On the cash flows, we remain quite comfortable on the overall cash position. Major deployment of cash has been in the acquisition of the 74 stores in South India. CapEx for newly opened 40 new stores and some amount of CapEx towards setting up of a new warehouse, which you've already discussed in the past, the first phase of which, which should be ready by next financial year. Inventory at INR 550 crores remained in line with the buildup for the upcoming festive requirements and included approximately INR 110 crores of stocks pertaining to the South India stores, which have recently been taken over. The South India store stocks include inventory, which is only less than 1 year old, which has been taken over as all the old stocks remain outside the purview of the acquisition transaction. We've also started using part of these South India stocks in some of our North India operations with very encouraging response. And conversely, we are also feeding some of the sharper price stocks from the V-Mart traditional inventory into the UL stores, the Unlimited stores to position the sharper price points that V-Mart is known for. As far as the online business is concerned, the online business continues to grow strongly, albeit on a relatively small base, but we remain very committed and very focused on building this to a large level. This availability on vmartretail.com, apps on iOS as well as Android and also with a very limited assortment present on marketplaces as of now. As of now, the contribution mix from online is around 1%, but we continue to build this business towards a 5% revenue mix in the next 2 to 3 years, which should be aided by hyper local delivery and lower cost to service nearby customers. Digital transformation remains a key focus area for the company, and we have set up a special new team to focus and leverage on technology-led initiatives to improve efficiency in all parts of the business. Coming on to the store expansion. On the new store expansion plans, we remain fairly committed to keep expanding, not only in the online space, but also maintain the rate of growth of 20% to 25% on physical store additions. So far, this year, we have opened 24 new stores. And in addition, we've also acquired 74 stores in South India. And thereby, the tally for -- as on date stands at 376 stores for the company. There are plans to open a total of 40-plus stores in this financial year, out of which 24 have already been opened. And some of these new openings might now also start happening in South India. On the Unlimited piece, the business is showing definitely good early promises of our stable and profit accretive base in South India in the quarters to come, at a zone level and without any significant overhang of corporate overheads. In the last 2 months operations -- last 2 months of operations and without any significant changes made in the cost structures or any big ticket systems or merchandise inventory planning, et cetera. The operations have remained quite satisfactory, although it still remains very early to make a judgment on how soon can we start looking at a very -- in line with V-Mart kind of profitability and growth. There's a strong team that we have inherited in the South, and there are a lot of initiatives planned for South India, including opening up of new stores right from this financial year itself. There is also a lot of synergy being leveraged in terms of product, visual merchandising and also operational excellence, which is being cross-pollinated from South to North and vice versa to benefit the entire organization, and we remain committed to make the combined operations in sync on providing better fashion and value to the customer. On the outlook, I think there are 2 challenges that remain open, while we remain extremely bullish and optimistic on the overall retail and business scenario. I think the 2 challenges. One is on the continued cost pressures in terms of the cotton price increases? And second is on the anticipated GST rate increase, which the government has announced to be effective from January this year. While we have made contingency plans and mitigating plans for both of these. As far as the cotton prices are concerned, we have already passed on the full impact of the price increase in terms of higher prices. But if things remain in the upward trajectory, we will be continuing to increase the pricing going forward as well. As far as the GST rate increase is concerned, while the government had announced that this might be effective from 1st of January, but we're still to hear on how the migration process, et cetera, will actually pan out. There may be short-term challenges in terms of how to mitigate the loss on the existing inventory. And -- but we remain optimistic and will remain in dialogue with the finance ministry through associations and communication to ensure that this transition is also managed and mitigated to a large extent. So that's all from my side. And I now request the moderator to open the house for questions. Thank you.

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

Happy Diwali to you and the team. And it's really happening, the strong recovery, which you have reported. I have a few questions. The first question, there is incremental dichotomy out there in the market that whether this physical retail will win back the customer. And we recently saw in the morning that even Nykaa IPO was having a super bumper listing, and they're also entering into the online retailing. So in your sense, how this physical retail piece will shape up for V-Mart? Or is that incrementally, the customer will drive down to the other channels of connect?

Shirish, very well -- very, very good opening question. And this is definitely one discussion, which is occupying almost 50% of our Board's time and the Board meeting time. And in the strategic discussions, which comes in and which is always discussed at our top leadership team. And then so what comes out is it's going to be purely multi or omni-channel. So it is neither this or the -- if it has to be multi for everyone, omni for everyone, whether online big players want to build their business, want to establish their brand, want to have a grip over the customers' consumption, they will have to be available in both the channel. Even for V-Mart, it will be very, very important. But yes, physical experience, more and more digital will definitely drive people for those physical experiences because they definitely blocked in a room, are tied in a room and tied with a screen. So they want to come out and also experience their physicality and have that physical experience. So I think it will be generally a large piece over the digital channel, which is going to be both omni as well as, I would call, customer want it to be available in both the platform, not in the real cities only because people have a lot of time in India, and they still don't want to same time to do digital, they really want. Right now, it's more a grab-oriented deal, a price-oriented deal, which people have longed on to. But yes, we have started realizing from this quarter, the last quarter, that people are now also looking at -- we are also getting a very good traction on the kind of honest price approach that we have taken up in the online channel. I think that is also going to play its own role, and we will have a very good win over that digital customer there.

Lalitji, I completely agree your view. But just one follow-up. You always have been vocal about priceless fashion. And I think what I'm trying to hint at is that the customers which we serve in Tier 2, Tier 3 are the value-conscious customer. Do you really think it will be becoming a threat to us or you think it is an opportunity?

It's definitely opportunity, Shirish, and I can tell you why? I had also tell the -- told them before. So there's a lot of new areas and there's a lot of new cities and a lot of new data that we're receiving, the top 1,000 cities where we're getting footfall from and 1,000 cities where we're getting business from. We are tracking them. We understand we have got a lot of regulations on that. There are a lot of towns which got discovered. So I think those fundamental things are also very important, and we will definitely take and make this as an opportunity. That's what the approach of V-Mart is all about.

Anyway, I have a longer discussion. I'll take it offline. My second question is on the winter portfolio. You have a very strong winter portfolio, which also drives our top line, heavy top line and it impacts the profitability for the company. In the early stage, I mean, around festive season, how this traction is happening? And if you could spend a minute or 2, how the inventory is stacking up, how the initial response in the market, which is just getting opened up, especially our Hindi belt, which is very strong market like UP, Bihar, Jharkhand.

Yes. So I think winter and prewinter or even the Northern retail business, Northern India retail business, has been really understood by V-Mart and the team of V-Mart very well. The processes that we have to plan, choose or to create and also supply and handle the supply chain is really very, very strong, and we believe there's been a great launch of our prewinter and winter collection. We have really picked up and then the acceleration in the sales from those categories have been very, very good, especially in this year, we have seen a very good demand coming in. We have seen a very good response from the consumer, and the feedbacks are awesome on our prewinter correction. I want to congratulate on this moment even to our -- and appreciate my entire merchandising team, who has done a great job in bringing a very, very differentiated as well as a unique product in the market, which is bringing in a lot of differentiation in the V-Mart brand as together. So we are really moving on those sides. We have definitely taken up some price rise also on those product lines. But we are seeing customers paying them. And what we have done is we have worked a little more hard on the product designing, little more hard on the product manufacturing, so that we are able to, one, compensate some of those price rise to the manufacturing cost reductions. And otherwise, we have worked with the team to create a very, very good product, which is perceived as much more better and much more -- a little more lesser-priced product would be seen as a much more better product in terms of the look and feel of the product. So that's what we are focusing on and that's giving us good result. And we believe this is a clear differentiation with any kind of retailer, whether they are the top-most of India, national retailers or even they are local retailers. We have a very clear edge in this particular collection. Thank you, Shirish, for taking this up.

Sorry to interrupt. May I request Mr. Pardeshi to please rejoin the queue. We have participants meeting for their turn.

Sure, sure.

We'll move to the next question, which is from the line of Percy Panthaki from IIFL.

Sir, first question on the South India foray. So you said that some of the new stores you will be opening up now in South India also. So firstly, when you do that, will there be branded V-Mart? Or will they be branded Unlimited for now? And secondly, if you are branding them V-Mart, will you open those new stores even before the rebranding of the Unlimited stores to V-Mart takes place? So yes, the first question on that. And related to that, how long do you think before the Unlimited business turns OCF positive?

Percy, you have long list of questions, and you have to be a little patient full to get the answer for all those questions, but I will go to asked questions. We still are on the research mode. We still are on the finding mode and how well is the Unlimited brand established in the market. We want, of course, understand that the brand perception, the brand understanding of the consumer, the brand strength in the market. So we are doing all those kind of formal process involving them in the process. But yes, we will continue opening. And whenever -- whenever we put it out, the strategy on that day is going to be because ultimately, we want to change the look and feel of the store and the brand ultimately. So happy.

Sure. Understood. Secondly, I just wanted to understand in terms of the normal store opening, not the South India, but in your existing markets, what strategy are you adopting there? Are you sort of trying to saturate the 3 or 4 core states that you are in? Or are you planning to open a higher number of stores in the states where you have only a minimal presence?

So Anand can answer this question? Yes.

Yes.

Anand, Please go ahead.

Percy, it's not identified goal as to that we only want to saturate, let's say, UP or Bihar. I think it's a very distributed strategy. We are definitely using the cluster-based model that we have evolved over the years and drive it to perfection. So -- which will mean that we will also open more number of stores in the core markets while inching outwards and spreading ourselves to newer areas and newer geographies like we have been doing in the last many years. So just as an example, we've opened more stores in U.K. this year, and we have also opened stores in Northeast. We've also opened stores in, let's say, West Bengal, et cetera, and Rajasthan. So it's a distributed approach.

Right. And lastly, on e-commerce strategy, the price points that you are putting in e-commerce, are they similar to the price points you have in your store? Or are they slightly higher price point?

They are exactly the same. In fact, the same merchandise is getting populated on the online channel. So when you visit vmartretail.com, you will find exactly the same merchandise. There is also a little bit more new experiment that we have started doing, which is in terms of putting in some exclusive merchandise, which is available only online and not in these stores, which might be at a slightly be a differentiated price point or in form of packs of 2 or packs of 3, which is something very prevalent and popular on the online channels.

The next question is from the line of Harsh from Motilal Oswal.

This is Ali from Motilal. Yes. So I have a couple of questions. First is on your store addition. Anand, you mentioned you are looking to add 20%, 25% new stores. So if I take the current number, it works out somewhere about 90, 100 stores. Now in the past, if we see '19, '20, on an average, then about close to 40, 50 stores. So if we are looking to add at that accelerated pace, can you just share some insight in terms of what capabilities you may have built internally in terms of the pipeline of properties? How we plan to basically execute that kind of a pace of store addition? And I understand, obviously, that this space is going to continue. So if you can also share some color in terms opportunity in the market to add maybe 100-odd stores consistently for the next maybe 3, 5 years.

Yes, Ali, that's a very good question. So as we understand and as we have seen in the last 10 years, the 20% to 25% retail area addition pace is based on the fact that we have the management bandwidth and the operational bandwidth to manage that number of new openings. And accordingly, we keep on adding and improving the capabilities and the width of the team, not only in the core head office, but also in the distributed geographies where we operate. So we divided or sort of branched out the operations into a zonal structure 3 years past. And thereby, we have now regional teams, which are taking care of the business development function, identification of new site's function independently. And this capability also now exists in the South India region, while it already was there in the Northeast and West regions, which we had earlier used to operate. So thereby, we are quite conscious and confident that we should be able to maintain the rate of growth.

Okay. And also, can you share some color in terms of the pipeline of properties you may have built?

So there is no number, Ali, that I can share, but definitely, there is always 50 to 60 properties, which are under consideration and in various stages of vetting, maybe let's say the proposal phase or at a site visit state or stage or many different stages that we do as a tick-mark process. But suffice to say, there is a healthy pipeline, and we do keep building on the pipeline consistently.

Got it. So second question is on Unlimited. Correct me if I understood rightly, you mentioned that if I exclude the Unlimited business and standalone V-Mart has grown 1%. So that implies basically that rest of about INR 20 crores, INR 21 crores in this quarter has come from Unlimited. Now Unlimited started, I think, from 1st of September. So if you could just share some more color in terms of why such a small number, I mean, what could be the stable state number of Unlimited. I mean, if I -- I just assume all the stores are opened and fully up and running. And a related question over there is, I mean, I understand that you will have a detailed strategy conversation on Unlimited separately. But just if you could share what are the avenues that Unlimited has to improve the margin. So I understand rental, obviously, will maybe be a little sticky. So there, would you have optimization of cost as one of your key strategy or you think throughput can significantly improve? I mean, I'm just trying to get some insight in terms of how would we look to improve margin profile and profitability in Unlimited?

So Ali, while it is very early days for me to comment and really pass a judgment on how the sales trajectory, et cetera will go on, but I can just add to what I've already said. See, September, first of all, is a small month, and it is also the first month of the transition which happened. So we are -- we had anticipated the kind of number that had come in, and we are quite happy with the number that came in. It is in line in sync with what we -- those stores had achieved in the past. So there were no surprises, negative or significantly positive. We are happy with what we got in September. And so far, also in the month of October and so far, what we have seen in November, I think the progress is happening as we had anticipated and as we planned. As far as the profitability and the cost structure goes, there are no big changes that we have made in the cost structures. There is only one change which has happened organically, which is the removal of the, let's say, the corporate cost structures of the erstwhile management team of the Arvind -- or of the Unlimited team that was managing that business. But otherwise, on a store level, on an operational level, there are no major changes that we have made or we are planning to make. I think our combined focus of the entire team is to bring sales productivity higher. And that should compensate in terms of higher profitability and bringing in as far in the long term to the near about range at which V-Mart traditionally operates. Okay.

Okay. Got it. Just for -- I mean, modeling or maybe understanding point of view, what would be the stable state revenue potential of Arvind -- sorry, Unlimited?

I think stable state, we should aspire, and we are planning and targeting to take it to near about levels of what a normal new store of V-Mart would operate in.

Somewhere about INR 19 crores monthly, quarter -- yearly run rate.

I don't want to put any numbers, but definitely, we would want to have a very harmonious and stable structure across.

Okay. And that should take about the year or it could be sooner.

It should be at least be 1 year or more.

Ali [Foreign Language] Guys, give us some building space. Please don't expect any number from us.

Absolutely, sir.

[Operator Instructions] The next question is from the line of Madanagopal Ramu from Sundaram Alternates.

Able to hear me? Hello?

Yes, please go ahead.

Yes. So congrats on good performance in a difficult quarter. But if I look at from pre-COVID level like Q2 FY '20, the footfall is still low. Obviously, there has been some disruption in the operations as you highlighted in the initial commentary. But as we moved into the festive season, how was the footfall compared to sort of, say, pre-COVID festive season. What was the experience?

So Madan footfalls have now been growing up, but I must also add that footfalls are not really the same -- one should not look at footfalls in the same breath as we used to, let's say, look at them 2 years back because there is also a slight shift in the way consumers come for shopping. So earlier people used to come for shopping in groups, in larger groups of friends and families, families of 3 or 4. And today, there is a slightly more focused approach where people want to come only to shop particular things that they want to buy. And only in festival times or very special times that they would come in, let's say, groups of 2 or 3. But having said that, I think the 80% recovery on footfalls and a slightly higher recovery in terms of the number of bills cut is definitely giving us confidence that the customer trust is now back in full force.

Okay. So all-inclusive is the -- are you saying the festive season in terms of SSG flat compared to pre-COVID, are you seeing some growth also?

No. There is -- I would say, it is still not flat, but definitely during the festive, it has been flat. But at least for the quarter, it was definitely not flat. It was at around 85% of recovery on the SSG or like-for-like. But during festive, we are seeing more close to flat or growth also in a lot of areas.

Okay. Great to hear that. That was my question. All other questions have been answered.

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

Just 2 questions from my side. One is that on Unlimited, you mentioned that the recovery or the 1-month period what we have seen happening. When I look back before acquisition, they did somewhere around INR 320-odd crores, and the run rate was about INR 86-odd crores. And the number, what you said about 4.5% contribution. Is it safe to assume that the understanding whatever you have got and the parameters on which you have evaluated that has surpassed in the 1 month of operation?

Shirish, as Lalit also said, I think 1 month is too short a time to pass an judgment. Let's just be a little bit more patient in -- because if we say anything right now or if we decide something right now that 1 month is the barometer or the benchmark, I think it may just lead us to some wrong conclusions. So let's just wait for a little while before we can start giving out good commentary on the Unlimited piece.

Okay. All right. I take it with that. On the second part, you mentioned that you have taken about 8% odd price increase because of cotton yarn inflation. Is there any further price increase in the quarter 2 you have passed on? Or is that whatever you have taken in quarter 1?

So, so far, what we have taken is somewhere around 8%, but further price increase is not ruled out because the cotton yarn prices are not showing signs of any abatement. As a consequence, therefore, also in our next year planning, there might also be a quantity degrowth in terms of the number of pieces that we are able to sell because of the higher price increase that may eventually be required to happen.

The next question is from the line of Jaspreet Singh from Equintis PMS.

Congrats on the various initiatives, including that what -- some Mr. Lalit mentioned. My first question was around this recovery, Anand, which you mentioned, 85%. So what I'm trying to understand is compared to 2 years back, same quarter? For a matured store for V-Mart, would the recovery be back in terms of, let's say, the revenue per day or revenue per month as we speak or maybe the month of September?

So I just explained that, Jaspreet. So in the September month or September quarter, the recovery was for a like-to-like score was somewhere around 85%, and that's also amplified in the data that we had published in the investor presentation deck. But as I speak, in the festive period in the last 2, 3 weeks, we have seen close to 100% recovery on the same-store basis for the mature stores or all these stores.

Okay. So for the quarter, it was close to 85% and now in the subsequent month, it's reaching 100% for a matured store?

Yes, yes.

Okay. Okay. Okay. That clarifies. Second is in terms of margin, the December quarter typically is the one where we get the best margins between 20% and 22% or ballpark, whatever be that number. Given -- you've highlighted the headwind of cotton prices. But at the same time, I'm talking about only V-Mart ex Unlimited. Do you think there is a case where this could -- this -- that could be up going forward, given that we would also have seen some kind of cost rationalization on the overheads, which might sustain for a long period of time?

So Jaspreet, there are no cost rationalizations for a long-term period. We have aptly stated that in our previous last many calls. Retail is largely a fixed cost business. And otherwise also, the inflationary pressures are not only on the cotton side, there are inflationary pressures all around. You look at the commodity cycles, space cycles, everything is going up. This has been the year of inflation. So I do not see any margin expansion happening because of cost savings. And otherwise, also, as a philosophy, V-Mart firmly believes in operating on this pricing model, and we will pass on. If there are any more margins that we can accrue, we will pass them back to the consumer in terms of sharper pricing.

Okay. Okay, fine. And just a quick last one. Again, you may have touched upon the previous calls, but just trying to understand, is there room for maybe not immediately or because you would need a couple of quarters to absorb, integrate and, et cetera, for Unlimited. Maybe next calendar year latter part, would there room for another round of acquisition for which you might start working subsequent quarters?

I don't suppose. And I can't say anything with certainty. These are things which happen because of more special reasons. So nothing on the radar. We're not looking or working at anything, but we will keep exploring, and we will keep looking at things. If there is something, we'll definitely let you know.

The next question is from the line of Devanshu Bansal from Emkay Global Financial Services.

And season greetings to the management team. Sir, my question is on the expected change in GST rates. So I just wanted to check, is there any mismatch currently between the input tax credits and the output GST in the current regime?

So while not directly, as far as we are concerned on the product side, but definitely, there is a mismatch in terms of the CapEx, GST on the CapEx that we do versus the output tax that we pay on the goods that we sell. So output tax on the goods that we sell is almost on 85% of the goods. It is at 5%, while for around 10%, 15% of the goods, it would be 12% or 18% because there is some portion of FMCG also that we sell. But if I look at the input tax credit, let's say on the services or on the CapEx that we do on the new stores, the average GST rate was out to around 18%.

Sir, any blended level that you can indicate? So I just wanted to understand as and when GST increases to 12%, will we be able to offset a higher amount of IT fee because currently, we may be able to offset only the 5% part?

No, no. Definitely. From that perspective, it is a positive. There is no doubt on that. It will definitely lead to better absorption and lesser accumulation of IT fees. But I think the worry is not from that side. The worry is more from getting the consumers to pay more for the same goods. And also, there is a large amount of inventory that we hold on which we had paid only -- or we had received an input of only 5%. But if things go as per what the government is proposing, we will need to end up paying or depositing a 12% GST on that inventory as well. In terms of the output tax as and when it gets old.

Sure. Secondly, I just wanted to check on the price hike that we have taken, you have indicated 8% so far. How is the competition extend -- what is the extent of price hikes taken by the competition? Any idea on that?

Our sense is that almost everybody has taken a very similar kind of price hike. It may not be very clearly be visible, but our studies and our understanding shows that it is very similar. Maybe, Lalit, you want to add something here?

Yes. So see, this is definitely something which has shaken up the industry, and there's a lot of interactions and a lot of debates, which is happening, both the price hike, because of the fiber, the yarn price is going up, which is good -- definitely shaking up everyone. Nothing is in control. We -- everyone is on their toe to understand what kind of prices, what kind of product -- how -- what kind of MRP should be charged? And there is an increase that everyone has taken up, no one is able to resist that. And people are also accounting for still additional price rise. So people -- the entire industry is doing that, whether it is an unorganized trade or organized trade, everyone will have to buy at a very, very high price and sell it at a lower high price. Other than that, on the GST front, the whole industry is focusing on this. We actually -- let me inform you that I'm also working with the entire industry group to try and talk to the government, understand, build those methodologies and understanding that why it will be difficult for the consumers to pay these kind of prices and this kind of taxes. So but still, I don't see a lot of response from the government. I think it may get -- there are 80% changes that it may get implemented.

The next question is from the line of Vinod Malviya from Union Mutual Fund.

My question was regarding the organic growth. Now before this Unlimited store acquisition, we had given a broad guidance of reaching some 600-odd stores over the next 4 to 5 years. And that was largely on the -- if I remember correct, it was on the organic side. Now you've added 74 stores of Unlimited. So should we like assume that close to 670 to 700 scores would be added over the next 4 to 5 years, including the Unlimited stores? Or this will basically -- the guidance which you have given is usually nonorganic and organic?

So Vinod I think our projections while remain intact, our aspirations also remain intact, and we remain very optimistic on the overall opportunity that the market offers. But we are not chasing any large numbers. We are not aspirationally growing in terms of that we have to open 600 stores or we have to open 100 stores. I think we are firmly guided by the profitability principles. We are firmly guided by what the consumer expects of us. And thereby, that number will totally depend on what is the right location and what are the right opportunities that we are able to see and therefore, leverage. So there is no number that we are chasing that we have definitely to reach this number at any cost. I think what we are definitely chasing is a profitable and a efficiency-led growth.

So something which you've done is with the costs, you have not leveraged or banished for the sake of getting growth. So that trend will continue in going forward. So what is that has to confirm the -- with the support of the balance sheet...

Yes, absolutely. Absolutely.

The next question is from the line of Vikas from Equirus.

Yes. So my first question relates to Unlimited. It could just give like a broad growth, whatever September month revenue that they have recorded, was it like how much the recovery that you had versus pre-COVID level for that month specifically? Second question would be -- if you could just reiterate what will be sales -- to an earlier participant question regarding what levers do we have with respect to bringing Unlimited profitability nearer to our V-Mart margin level?

Yes. So from what I -- actually, your voice was not very clear from what I understood, you asked 2 questions. One was around the recovery percentage that we spoke about in the first question. And second was on the profitability projections for the South India stores. Is that correct?

Sir, first question was regarding the like-to-like performance of Unlimited for the September month that we recorded this time? And how was that with respect to probably pre-COVID levels last year? And another one was correct, as you said, the lever that we have for bringing Unlimited profitability to our V-Mart store levels?

So for the Unlimited, the stores, the like-to-like comparison was not really relevant because there were significant amount of changes which happened during the pre-COVID times versus what happened in this year. And as I said earlier, we would not really want to comment too much on the performance in the first month itself. It is too short a period. I think we should just be a little bit more patient in terms of -- we are also being very patient in terms of understanding the right trends so that we can take the right actions. Now as far as the profitability is concerned, we remain firmly focused as a company always on making any part of the business operation profitable. And we are very hopeful and very optimistic that we should be able to repeat and replicate the same kind of model or structure in this newly acquired set of source. It might take a little bit of time. We have already given us and planned for 1 to 2 years of runway wherein we would want to reach similar kind of levels, and we will continue to monitor the situation and keep coming back to the larger analyst group, as and when we have something major to report.

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

Sir, my first question is regarding the CapEx. Can you highlight the CapEx which we have done outside the acquisition for the first half and for the remaining half, what is the target of CapEx?

So first half, apart from the acquisition of these 74 stores, the other CapEx largely has been on the new store additions. And also purchase of land, which we already reported in quarter 1 call for building up a new warehouse on which work is shortly about to begin. For the remaining part of the year, again, there are going to be 2 parts. One is around the new store additions. So roughly around 15, 20 stores should get added in the second half. And there would be some amount, roughly around INR 20 crores, INR 25 crores of CapEx that should get spent on the building for the new warehouse.

Sir, so the major part of the warehouse CapEx will come next year and not this year?

Yes. Correct. Correct.

Okay. Sir, second question is regarding the gross margins. Currently, the ASP and the gross margins of Unlimited are slightly on the higher side. And initially, last call, you had alluded that from the next season, we will pretty much migrate to the same cost structure of V-Mart at the Unlimited stores level as well. So should the gross margins actually correct going forward at the company level, given that at least next 6 months of gross margins will be slightly higher.

So Ankit, we are evaluating and what we believe the customers there are able to pay or are able to attract -- we are able to attract customers to pay a little higher prices on the similar product. And then definitely, there are some of the good things which have been happening. And there's a margin structure that Unlimited has been following. But our focus will be largely to bringing up the thought process on the customers mind that we are actually delivering them at better value, better product. So by creating the product, there may be a dent on the gross margin from the earlier times, but we still would have a higher gross margin too because, one, we are -- we will be largely a fashion store. Two, it will be a single season geography, wherein we may not have to discount too much for the season sale and end-of-season sales. So there are not too many winters and summers, which are there in the Northern part of India. So we will have a lesser discount margin which will go out. And also, third, I think it is also because that we don't have any other business of Kirana and which are lower-margin businesses. So we will also gain some margin from those lines. So I think, overall, the gross margin on those lines of those side of the business and those portions of the geography will be much higher. And then definitely, we are bringing in efficiency in our operation, all those practices that we have been building up in V-Mart will -- when these efficiencies are implemented at the Unlimited level, we will definitely see a better outcome at a lower cost. So that's the approach that we will take. I would want everyone to rest on this piece for a little while, and we will definitely keep giving you additional information in the coming times.

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

So thank you, everyone. Definitely, these are testing times. These are -- there is a lot of iterations, a lot of -- I mean there is going -- calculations are going on that how do we handle inflation, how will customer handle inflation, how will customer take up inflation? What will be the strategy adopted by different brands and different industries? And this is definitely eating away a lot of the mind share and the discussions of the Board meeting shares in each of the Board rooms. So these are definitely big questions to get answered in the consumption industry, consumer industry. All the consumer industry must have got that impact. And I think once again, Bisha also passed away. He got -- I want to think of it. Customers are definitely going to earn or whenever there's inflation, we say economy runs well, economy runs better. It's a higher GDP or per capita income for individual customers. So that's how we take this as a very good growth opportunity, and we anticipate a very good growth phenomena coming in the next 2 years for the entire India. Thank you. Thank you so much for being there patientfully. We will definitely report, come back on the next quarter. See you.

Thank you. On behalf of Edelweiss Securities that concludes this conference. Thank you for joining us, and you may now disconnect your lines.