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

Ladies and gentlemen, good day, and welcome to V-Mart Retail Limited Q3 FY '25 Earnings Conference Call hosted by IIFL Capital Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sameer Gupta from IIFL Capital Services Limited.

Hi. Good morning, everyone, and welcome, everyone, to V-Mart's conference call. Without taking more time, let me hand it over to the senior management for their initial comments, and we can take Q&A after that. Over to you, sir.

Good morning. Thank you, Sameer. Thank you for hosting us. Thank you once again to every participant who is there on the call. The run continues, we definitely see a little betterment in the market. The festival has been quite good. I would not say it has been very good because the way we expected it, it didn't perform as good as that in the last few days of the festival. But yes, post the festival, things are very good. We saw overall demand spurting up because of the marriage seasons as well as the winter sale, which got generated. Winter definitely got a little delayed in the month of November and then it was weak in the month of December. December was very good in terms of winter period. But yes, the overall sentiment in terms of the semi-urban, rural population, the overall sentiment in terms of the lower strata consumer segmentation that we saw in the industry, in the market, at the [ car ] stores, has been quite promising -- as in good. We do -- I mean, the commentary that I'm saying is not resonating with some of the other brands and some of the other companies that we have been speaking with and we have been knowing that. So but yes, we are definitely seeing some betterment here. It could be also the outcome of -- what we are seeing is an outcome of also maybe unorganized share reducing a little more. Unorganized moving into more of organized share, and that is helping a lot of value retailers and especially value retailers who are quite nearer to the consumer demand, nearer to the consumer taste, nearer to what the consumer wants in that particular market and is able to provide the real value, real quality product. So I think most of the industry players in value retails are getting good responses and that is heartening to know. And that definitely also is telling us that there is definitely a lot of shift, which is happening from unorganized to organized. And it is becoming a good news. It is becoming good news for the overall industry. Everyone is getting the benefit. So I think the performance during festivals helping has been good. The performance during winter period has been good in the last quarter. Definitely some spending concerns were there from the government side. Some real liquidity concerns were there at the consumption end, which we realized. But still, I see there are change of hands, which has happened because the consumers who were consuming earlier has now shifted a little bit. Youth, somewhere we have seen that youth have got a little more liberty, a little more empowerment, a little more ability to spend in the market and we also acted in that period in the last year itself and which has given us some benefit. So we have thoroughly watched ourselves as well. The youth share of our business has literally gone up because that share used to be somewhere around 22% earlier, now has gone up to 27%. So we are focused towards the Gen Z population and Gen Z population itself becoming larger and then becoming much more empowered is giving us to those kind of betterment. So I think this particular spree that we have taken up or this particular strategy that you have taken up to attract that particular kind of audience and be relevant to that particular audience with all those initiatives is definitely is the right move that we feel and we'll continue doing that as well. And we feel that definitely all this focus towards the lower income or the middle income group segment, which is especially more in urban cities, which is by the government by even reducing the taxation and raising the limit, all of this should definitely further help us to sustain that and maybe grow that. So I think, largely, the fabric prices, the material prices have been almost constant. There has been some movement in the material prices, in cotton prices, in the yarn prices, but I don't think -- I don't see a lot of risk because the government's focus is also very largely on the textile sector. The government is ensuring that the cotton prices don't go up and there is enough production in the cotton prices. So all of those moves by the government also towards the textile industry is definitely something, which will add more resources, which will add more benefits in the overall manufacturing side. But yes, definitely, it will also bring in a lot of innovation because whatever PLI schemes that is being given in the textile sector is also bringing a lot of innovation in India, a lot of new development of fabrics, a lot of new development of those kind of product lines is getting developed. And then also another good news that we're seeing is a lot of factories are getting set up, even in apparel sector, even in garments. So I think some of these pieces, we are very conscious of all of these pieces. We are really regularly participating in industry meetings and industries areas, so we do get updated on all of these areas. We try to motivate vendors to try and grow into those levels, get on to those segments. A lot of states are offering a lot of incentives and better benefits in terms of apparel manufacturing units, giving them labor subsidy, giving them capital subsidy. So all of those definitely is a better area so that organized production, large-scale productions can happen in India. Last year's production will definitely help retailers like us who are going and who are definitely wanting to have better supply chain, better mine-to-market speed, better fashion designing, better quality. So -- and definitely, reducing the prices. This is the important part. So all of those things is definitely making the whole value retail segment or value apparel fashion retail segment a little more stronger. And that can give a little more pressure to the brands to the ones who are selling it at a higher price or are targeting the higher middle segment of the consumer. So there are some constraints have been seen and that continues even with this quarter. So -- but yes, largely for us, we have been focusing and we have been really strengthening our quality piece. We have strengthened our design piece. We have worked a lot on our store experiences in terms of ambiance, in terms of the look and feel, in terms of the visual merchandise, in terms of the product displays, in terms of the cleanness of the store. [ Clutter-ness, reducing the clutter-ness ] in the store, trying to work on the density of inventory at the store level. So some of these pieces are also giving us some benefits. We are definitely focusing a lot on sourcing, focusing a lot on reducing the prices, focusing on keeping the prices sharper, aligned. We definitely haven't reduced our margin yet. That also we may experiment a few of the items, a few of the products where we would want to generate a little more higher volume and try to see what is the market possibility demand, which can get accrued. So some of these things have happened. We are definitely working a lot on the futuristic need in terms of the technology, in terms of the integration of technology because there are various processes, which got -- which needs to get automated, which needs to get a little more sharper, which needs to get scaled up. And there, we are using some of these technology pieces. We are talking to a lot of technology companies to integrate further processes as well. And enhancing our digital experience even at the store level in terms of those lost sales or in terms of endless aisle and one-click proposition, through LimeRoad is really working very well. You've seen a lot of a lot of app downloads at our stores. So we've seen almost -- more than 3 million app downloads happening at our stores. So some of these pieces are for the futuristic understanding, futuristic needs and then some of these pieces are now coming into good thought process. And we also -- we have focused very highly on keeping our inventory levels at the base or reduce our inventory levels, days of inventory going down, better freshness of inventory at the store level, how do we increase our freshness, how do we really better on the new designs and new philosophy of product lines, which is required by the consumer. So some of these things have helped us, and we will continue doing that. Manpower cost has been a little bit of challenge because manpower minimum wages have grown in certain markets, grown by very high degree. So that also initially it could look like a bigger, better or a higher cost to the organization, but later on we believe that all of these minimum wages will also bring up the GDP of a particular state, the per capita income will go up. The consumption further will come up and that will further offset all of these costs. So definitely a state like Orissa saw almost 29% minimum wages hike. Jharkand saw a 22% minimum wages hike. So some of these states, which went for election in the last 2 years -- within last year have seen a good growth in the minimum wages hike. So that is increasing a little bit -- putting a little bit of pressure on the labor bill and power bill. Even the huge competition, which is splitting up, everyone wants to open up more stores, a lot of money has been raised in the market through private equity and IPOs. Some of these pieces definitely brings more dynamism in the market. There's more number of stores getting opened, everyone wants to target a higher growth. So I think some of those pieces also is trying to -- where there's higher competition among employees. So that is also something that we are watching and we do know. But there could be some pressure, but yes, we are trying to nullify all of these pressures through bringing automation, bringing digitalization and trying to provide similar or better solutions in those number of people that we have. So there's a lot that is really worked at the V-Mart level on the back end side. A lot of analytics, a lot of work on the data management, some work on AI. Some of those things are also happening. I mean, we will keep updating you, but let me hand over to Anand so that he can give you a little more detail about the results that we have announced this time. Thank you.

Thank you, Lalit, and good morning, everybody. Let me take you through some of the key financial and operations highlights from the quarter and then we can open the session for questions. This has been a reasonably good quarter. Like-for-like sales growing at 10% in aggregate with the unlimited LTL also growing at 11%. There was a bit of a delay in the winter onset after Diwali, which impacted the winter merchandise sales briefly. But however, it picked up in late November. I think, overall, temperatures have generally been hotter in this current year than the previous years reflecting increasing impact of climate change, which was also reflected in the lower peak winter days during Q3. However, efficient planning did not lead to any adverse impact on the inventory due to this. But despite the winter challenges, the sales grew at a healthy 17% in the off-line business with footfalls also growing by almost 40% in this quarter. V-Mart sales grew by 19%, while Unlimited had a lower 6% growth despite [ we are up ] 11% LTL increase due to the adverse sales base impact of 12 unprofitable Unlimited stores getting closed in last year. So on a comparative basis, the base quarter of Q3 of last year included the sales of these subsequently closed stores, resulting in an optical lower growth rate for Unlimited in the current quarter in this year. Looking at the sales per square feet, the total sales per square feet increased by 10% for the quarter, which was in line with the LTL growth. The SPSF growth for V-Mart increased to INR 927 and for Unlimited was at INR 676, which was also 10% higher than previous year. The average selling price remained flat for V-Mart, while it degrew by 5% for Unlimited due to changes in merchandise mix. The ASP should remain in a similar range going forward, but for any seasonal or mix variations. The LTL sales growth was similar across all tiers with Southern India stores doing marginally better in Tier 3, Tier 4 markets vis-a-vis the Tier 1 and Tier 2, reflecting the success of replicating the V-Mart strategy of getting into smaller towns also in Unlimited. For stores under V-Mart brand, the like-to-like sales growth was similar across almost all tiers. At an overall level, the festive period went off quite well. Substantial part of Durga Puja sales shifted to the previous quarter, thereby implicating a relatively softer growth in the East zone in this quarter. However, all other regions had double-digit LTL growths. We opened 21 new stores during the quarter with 19 in V-Mart and 2 under Unlimited, taking the tally to 488 stores Pan-India, out of which 85 now are in South. All the new stores opened this year, including in South, have been performing well and in line with the established V-Mart business model. Moving on to gross margins. The total gross margin was at 35.8%. It was 30 bps higher than last year despite a 38% lower revenue contribution from LimeRoad marketplace business, which flows in 100% into total gross margins. So the improvement in gross margins came in at the back of better -- fresh merchandise sell-throughs of new winter merchandise. However, on a go-forward basis, we shall be prepared to compromise on product margins to make the value proposition even more sharper for consumers and improve on inventory freshness through higher inventory turns. Coming to expenses. At an overall level, total expenses were almost 3% lower than last year, in line with the 3% reduction in Q2 as well. The continued reduction is due to the sustained significant reduction in LimeRoad online marketing expenditure along with favorable impact of closure of the unprofitable Unlimited stores in the last 1 year. The manpower cost was up by 24% on the back of increased incentives, increased higher minimum wages and also the increase in the variable component of the ESOP liability, which is in line with the sales growth. There's a higher focus on employee reward and motivation to positively influence efficiency, which should further drive overall profitability and growth. Other expenses declined by 15% year-on-year due to decline in the LimeRoad business and consequent logistics cost apart from a few other efficiency improvement measures. Coming to EBITDA. For the V-Mart core business, EBITDA for the quarter came in at 17.9%, which was 130 bps higher than last year. And Unlimited at 15.4% due to the beneficial impact of closure of the loss-making Unlimited stores in the last year. For total V-Mart, including the 54% reduction in losses from the LimeRoad business, the total EBITDA for the company came in at -- came in 43% higher at 16.7% for the quarter. Coming to inventory. The quarter closed at INR 818 crores of inventory, which was at 92 days. There's a lot of good work, which has been happening on the product side, which includes a lot of technology-led improvements in designing, sourcing, quality control and replenishment cycles, leading to overall improved sell-throughs and thereby better inventory health. This is still work in progress. I think Lalit also alluded to this, and we will be -- we are undergoing a lot of projects sort of work in this area and this has been our core focus of how to improve the product side and thereby reflect even better inventory cycles going forward. YTD CapEx has been at INR 83 crores, which includes spend on the 49 new stores and refurbishing of old stores. The new warehouse, which has had a few initial operating challenges in the last year, is fully stabilized and is helping improve the overall supply chain turnaround times. The working capital limit utilization has reduced by 70% since the start of the year and remains in a very comfortable range. Better profitability and improved working capital led to a positive net free cash flow of INR 59 crores YTD. There is no long-term debt on the books and we remain comfortable on the cash front with ample working capital limits available to leverage future growth, which will be financed mainly through internal approvals. Coming to store expansion. We opened 21 stores this quarter and 49 year-to-date with 5 closures. The pipeline for quarter 4 looks reasonably strong, and we should end the year with 50-plus net store additions for the full year. There may be 3, 4 store closures in the current quarter, which is a normal practice as we will budget for 1% or 2% mistakes that we will -- that will need closures every year. All the major corrections, onetime corrections, have already been done in the last year. And going forward, we should see minor 1% or 2% closures on a need-to-do basis only going forward. Coming to LimeRoad. The marketplace business remains in improvement mode. EBITDA losses already reduced by 54% in this quarter year-on-year. This is the seventh straight quarter of reduction in losses at LimeRoad. The strategy on LimeRoad remains the same, which is to extend LimeRoad as the fashion-forward omni-arm of V-Mart and facilitate very easy order placement process by V-Mart customers through the LimeRoad app initially for missing sizes or missing colors in the offline stores, but eventually extending it to offering a bigger catalog of products, which can be offered beyond the brick-and-mortar stores. Before I conclude, I also wanted to mention that Lalit's elder son, Varin, has joined the company recently. Varin has completed his education from New York Stern School of Business and have also done stints with Kearney and U.S. telecom and strategy in the U.S. before shifting back to India in December. Varin has joined us in the operations team and in helping co-execute the future expansion strategy for the company along with Vineet, in Vineet's team. The company has also recently been awarded with the prestigious 2024 Institute of Company Secretaries of India Award for Excellence in Corporate Governance during the quarter, recognizing our commitment to the best governance standards. This recognition comes as a follow-up to winning the Golden Peacock Award for Corporate Governance in 2022 and also the 2022 Certificate of Appreciation at the Institute of Company Secretaries National Awards for Excellence in Corporate Governance. So that was all from my side on the operations and the business update. I now request the moderator to open the house for questions.

[Operator Instructions] The first question is from the line of Tejas Shah from Avendus Spark.

Sir, just wanted to know like for example, last in 12 to 15 months, clearly policymakers are trying to -- they have first recognized and then they are now trying to solve the problem at the mass and you also spoke, Anand, on positive sentiments. So just wanted to know the sustainability of the same, a. And b, when we look at our recovery in our numbers, which is on a stand-alone basis, quite good, but now many of our peers are also being listed and when we compare, over there, there seems to be some -- we are tracking below the median growth rate. So if you can comment on both these points on growth.

Okay, yes, I think I've already mentioned about this and we believe that there is nothing, which should distort the aspirations or the consumption speed that we are able to see. And we should get a little more positive news going forward and then we should see more disposable income in the hands of consumer. Consumer should feel more confident going forward as we see. And more and more [ initialization ], more and more manufacturing capabilities has to come into India and will get appreciated here. So I think we definitely have good plans going forward. We continue thinking because we've always seen that especially in our markets, it do not behave as the global markets. It does not behave also as the national urban market, but it does behave -- once the consumption really starts coming in, at least 3, 4 years, if the monsoons are good, we continue having good demand pattern coming in. So we are positive. We are hopeful, we will continue targeting similar kind of growth and then maybe not exactly this one, but maybe mid- to high single-digit numbers. So that's what we are targeting. And I think everyone who is able to focus, a little more complexity has got developed in terms of fashion business because there's a lot of change in terms of the fashion wearings and the kind of product lines which are getting launched, the kind of fits which are getting launched and which are being accepted. And there's a lot of complexity in terms of understanding the consumer versus the fashion because there are tiers, and within the tiers, there are stores which should behave in a different manner versus a store which will behave in a different manner. So there are different consumer persona, which has to be identified and the product line has to be mapped with it. And it involves a lot of complexity in terms of forecasting location, understanding the consumer and understanding their pattern of buying and then locating such kind of product because the range has become a little more wider. And there are customers who still believe in the classic designs and there are customers who now want the modern designs. So how do you differentiate between two and both the customers are important. So that's how you have to pass through this transition journey and that becomes very complex for some of the retailers. And retailers who are able to cater to that are then able to provide better growth. And these will be testing times for retailers -- fashion retailers, especially in the next 1 year.

And Lalit, on relative growth, how do you -- how should we interpret the gap between us and median growth rate that we're seeing in the space?

I mean, Tejas, I may not be able to help you a lot. I told you this complexity is there. So I mean, comparison is very difficult. But yes, it is also a function of their own market. It is a function of their consumer segment. It's a function of how do they anticipate the fashion, anticipate the growth. And then how do we actually perform. There are hundreds of levers, which we say between a cup and lip. So [Foreign Language] until the time the product reaches the customer at the right time. So a lot of things has to get synchronized so that you actually deliver those outcomes. So I think if some retailers have delivered a little lower, unless until they are targeting a different segment of consumers, unless until they are targeting a different price point in the market, they definitely should be able to get the benefits, which is coming out of this market. So we believe -- I mean, I don't want to mention anyone who's doing bad, maybe in certain phases of time, they might have not performed. But they will once again come back and perform. There are retailers who are East-based retailer and East-based retailer because the Pujo sales have gone a little bit in the Q2 market also. So East-based retailer has shown because even our region, as Anand mentioned, has shown a little lesser growth compared to other zones because there, the market -- the festival period has shifted to the quarter 2. That is why maybe you are seeing some differentiated growth.

Got it, sir. Just second, how the new stores have done because we corrected a lot of COVID phase store shutdowns. And then we actually kind of recalibrated in the last 2 years. So how they are doing? And any guidance looking at the consumer sentiment you would like to give for FY '26 on store opening.

I think, for us, we have been very, very conscious because we have closed a lot of stores. So a lot of learning has finally got plowed back into the decision-making processes on the new store finalization or new store search and new store opening. So all of those learnings are now being -- getting accounted. So as of now, most of the stores that we have opened in this particular year and the last year has really given us one of the best sales per square feet in new store for the last 5 years that we have opened. So these stores, which we have opened have given the little better sales per square feet and more than the company average that we have clocked. So I think we definitely are very conscious. We don't want to go out and open up any store at any kind of rental because there's a lot of [indiscernible] the market to acquire property. So people are going out to give any kind of prices because the money is becoming steeper as the multiple in the share market has gone up. So people are trying to raise funds at a lower cost and the cost of capital becoming lower. People are taking those kind of decisions also, which we are very, very clear that we don't want to go out in any kind of those spree. We'll be very conscious in terms of our rental, we'll be very conscious in terms of the location that we open up. And then we just does not chase number, but we'll definitely chase the profitable number of growth that we are able to do with new stores.

Got it. And sir, last one, inventory days have come down significantly and inventory looks very healthy. Should we expect that assuming that there won't be any discounting pressure next year, would you use that tailwind to expand margins? Or you will pass it on to consumer to drive SSG next year? And any guidance on any target that we are running for inventory days as well on improvement?

So Tejas,, these are all incremental areas. [Foreign Language] But it generally doesn't happen like that. So it is all -- there are a lot of efforts, as I said, a lot of efforts has to get synchronized and everything has to fall right, even the seasonality. Like this year, the January month has not been great because the winter was topsy-turvy. Winter was topsy-turvy. We did plan for the inventory. When you don't -- when you don't get a great season, maybe you need to discount a little more. You need to liquidate your inventory or maybe you get a little left over of the inventory. So these are synchronicity. We can put our efforts. We will definitely want to bring in all those kind of automation, digitalization, analytics, which is required. But still, there could be an outcome, which may be in our hand and which can become positive. We would definitely want to better our days of inventory covered by reducing it by at least another 5%, more coming down to the 87 days or 88 days. That's where we would definitely want to target. And -- but yes, the margins also -- on the other side, we would want to become a little more attractive in terms of value providing to the customer because that is what will work. And then because there is a lot of there are a lot of players across the road in the same street, which is providing and trying to provide the same customer with value, you will definitely have to be much more sharper in terms of the price. So margin leverage or margin escalation is not possible. You may have to take down a little bit of cut in the margin also, but provide more value to the consumer to retain the consumer and also attract more consumers, which -- because the organized segment has got more consumers in the market. Now it is about us, how do we attract them and retain them and give them the right and the best value, which is possible. The value is not only about price. We are not chasing price, but it is more about quality as well as the product, which is important.

The next question is from the line of Rishi Mody from Marcellus Investment Managers.

So Lalit-ji, just picking up on Tejas', when you responded on the rental piece from competition, right, other retailers have also pointed out that rentals have escalated. So are we going to go for properties with lower rentals and maintain our store count guidance? Or are we going to reduce our store count guidance -- store count addition guidance and wait for the good properties to come back once, say, some stores fail?

I think that's the skill that we have and that's the skill that we are going to apply. We definitely don't intend to reduce our store count. We would continue to open similar percentage of new store addition or percentage of square feet addition that you would want to do. But yes, we just don't want to chase those numbers. We will be very conscious on trying to open up the stores which are profitable and it gives us a great return on investment. So that is the underlying factor, and that is the underlying message which has been passed on to the team and that is what we would relate and we would want to. Maybe if there is a difficult period where you don't get a great property, but you don't get a great price, you may not want to open up. You would rather want to focus more on increasing the same-store sales growth rather than the opening of new stores. But we always keep this stand and we always have been telling this to the market and telling it to everyone that our growth will only come from our possibility of rental being at below 7% -- 6.5% to 7%. It cannot go above that.

Right. So I'll tell you where I'm coming from, right? So we've guided for, say, 60 store count additions over the next year. In the past as well, we've had an accelerated store count addition, albeit some stores, which may be pre-COVID weren't coming to the same throughput. But we maintained the store count addition. So just trying to understand, are we changing that stance going forward, the fact we won't open stores in locations which won't give us the minimum throughput?

No, I'm not saying that I'm changing the stance. We are saying that we continue have been the same growth rate, you may calculate that to 60 or 65 or 55, I don't know how your calculation working. We will continue to have similar targets, similar goal, which we have passed on to the team, and we would definitely want to open up and get the analytics because it's just not about city or it's just not about the town. It is also the location in the city. It is also about the frontage of the store. It is also about the size of the store. It is also about the floors that you have in the store. It is also about the rental [ top ] that you are paying to the store. It is about various terms and conditions. So it definitely has a lot of involvement. But yes, the team is aligned. Team is very much skilled. This is the old team. This is the strength of V-Mart, and we would continue to leverage that strength.

All right. And where the competition is setting up stores, right, whether viable/non-viable, I'm assuming the store count addition rate of competition has increased on the back of the fresh funding that they have received. Are we seeing any temporary market share loss in at, say, any catchment level or region level? We might regain it, but in the nearer term, are we seeing that impact hitting us?

I think over -- if you look at the overall retail market, I'm not seeing that happening. But yes, if you see at the organized share of market what is my percentage market share in the organized share definitely because the organized share, the number of competitors have grown. There are more than 12, 13 competitors or 15 competitors, which are trying to open similarly, so you can't compete with all of them. So market share may go down, it did in the organized share. But on the overall spree, just the market share is continued or is increasing.

Okay. Got it. Understood. And finally, on the minimum wage increase, right? You called it out that Orissa, Jharkand going into the state election increased the minimum wages by 25%, 30%. Are we also seeing -- like we have Bihar elections this year, we'll have UP elections a couple of years down the line, are we hearing any minimum wage revisions coming in for these states?

I mean, it also depends because these states also have a lot of people who are unemployed. These states also provide manpower to most of the Indian states. So these states need their manpower to work in their state. But that won't happen if their minimum wages are not attractive, the industries won't come in. So they want also to bring in industry. It depends. It depends upon the state of the affair of that particular market and also what is the minimum wages. Orissa and Jharkand were at a lower minimum wages compared to the other states, they increased sharply. And there is a lot of activity happening in Orissa in terms of mining and stuff. But I don't expect similar to happen in UP. But yes, something may happen in Bihar because they are also at a little lower -- but that will continue. And that's what the risk that I have told and merited that this is a risk which is a short-term risk, but ultimately, it should lead to a higher GDP and higher per capita income, which should once again come back to the consumptions.

The next question is from the line of Aditi Loharuka from CD Equisearch.

My first question is that what happened led the sales to go up?

Sorry, Aditi. Can you repeat that question?

My question is what factors led the sales to go up?

So it's a mix of multiple factors. It's not a one factor. So one is quarter 3 usually is a very strong quarter for us and we've been doing a lot of projects, a lot of work around improving our own efficiency in terms of the product mix, the product quality, the product design, the -- what we source, how we source, from where we source at what price we source and making the customer proposition even more stronger. It's been a continuous exercise for the last 1, 1.5 years, and thereby, you will see -- you would have seen the sales improvement has happened for the last 1.5 years consistently. So this is probably the fifth quarter straight where we have delivered good same-store sales growth. And we believe that the work that has been going on is sustainable and is helping us build the momentum for even better growth in the quarters to come.

Okay. And sir, what is -- like how do you think ASP of V-Mart will move over time?

I think we are very comfortable with the ASP where we are. There may be some changes because of the festival mix or the climatic mix, which happens from month-to-month or quarter-to-quarter. But at the level where we are, I think we are fairly comfortable.

And is there any inflation trend in raw materials or in consumer spending, can you see that?

So there is a bit of inflation pressure that we see on the expenses side. But as far as the raw materials are concerned, I think cotton prices have, in fact, a little bit softened, but they have remained in a very narrow range throughout the year and we are not anticipating big changes in the cotton pricing going forward. Oil has also remained pretty much -- very much in a controlled range. So we're not anticipating any pressure on the raw material front. But yes, on the expenses side, on the manpower cost, on the rental cost, there will be inflationary trends and it has been there also in the past. So nothing unusual, but yes, it will continue. It should continue.

So will those increase in expenses be passed on to customers?

We will try not to. We will try our best efforts not to because our customer segment is extremely cost conscious and we will want to, therefore, mitigate any normal inflationary trend through efficiency improvements and volume rate improvements. We will try not to pass on any more surprises to the customer.

Okay. So what do you think is the more of your priority, like retaining the customers or retaining the margin?

Absolutely retaining the customer. We are absolutely very, very customer-centric. Profits are important. Profitability is the reason why we do our business. So every store, everything that we do is centered around profitability. But we will not want the customer to move out because of compromising on profitability a little bit. But yes, we don't want to get into a loss-making situation. Our focus always is to make sure that any location, any store that we run is profitable and continues to remain profitable.

Sir, the expenses are going up. Can we see any decrease in margins going ahead?

So Aditi, this is -- you have to understand this business and understand this mathematics a little more in detail, let me explain you. Even if your cost goes up, the whole process of getting the margin is -- has to be through higher volume and has to be through better same-store sales growth. There is some element of cost, which is to always keep going up like rentals. Every year, you have got an increment or every 3 years there's an increment, which is bound to grow. So now you have to see -- and there's a labor -- manpower, which is bound to grow. Every year, there's inflation which is happening. There is some amount of cost, which is going to. So that is the reason that we always anticipate same-store sales growth. And you need to beat those numbers in terms of your same-store sales growth. All of these cost increments, if we do a same-store growth of around 4%, all of these costs get mitigated. Anything in delta 4% same-store sales growth always gives you -- add betterment in your bottom line if your gross margins are constant. But if you now become a little more sharper in terms of pricing, if you are not able to sell through at a full price and then get quantity, your margins get compromised. Your gross margins are compromised. So you may finally get into the bottom line. So don't worry, I mean, we definitely believe that the margins should be constant or should be growing, but as long as we are able to keep getting this whole same-store sale growth phenomena.

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

Sir, question is on basically margins. So you mentioned that from a gross margin point of view, you would want to be a little more sharper to improve the value orientation . But I just want to understand from an EBITDA margin point of view. Now when I look at it, we compare from a pre-IND AS level, current quarter of margin would be still somewhere close to, give or take, around 400, 500 bps lower than what you were doing from the pre-COVID. And I'm just staying Q3 number, of course, YTD will be different, but just given the fact that we are improving the numbers every quarter, I'm taking this quarter number. So still 400, 500 bps lower. So just want to understand, I mean, the point that you mentioned that improvement in throughput will continuously improve your margin. What level of increase from the current throughput you think should allow you to kind of reach your stable-state margin that you are doing pre-COVID level from a full year point of view? Any understanding over there will help. I was just thinking from the point of the pre-IND AS level, this company can do somewhere about 8% kind of margin in terms of EBITDA and probably 4.5%, 5% margin, then how much further throughput improvement is required to be able to achieve that?

So Alia, I don't think I know maths better than you. So you are an expert in math, it is a metaphorical question and you should be able to answer that. I don't think I need to answer this.

My point was more from qualitatively, more from the point of view that you are looking at that situation on the ground how much you think levers you have that will help you probably reach...

These are all perspective, these are all subjective perspective. So we need to keep working on all of those. We need to always keep focusing because there is definitely a higher trust that the consumers are demonstrating on organized retail. And this movement from unorganized to organized is making things much, much better. And that is what India is all about. That is what -- and if their per capital income once again grows and they start consuming a little more and their disposable income is a little better, the share of urbanization increases. The share of consumers coming into organized share increases. I think all of these will fold up into our basket. And then definitely, our own efforts and our own proposition, our own ability to understand them, provide them with the right assortment mix and merchandise and give them those point of quality, which creates trust within them. So all of those will finally add up into the same-store sales growth, and that same-store sales growth will finally bring in the margin. So we definitely believe we will want to be constant, but still, as you all understand and we all know that there has been multiple number of competitors, which have got evolved. There are higher ticket size competitors or conglomerates, which are driving value retail. So definitely, there is going to be some pressure which is going to come in, in terms of value providers because what consumer wants and what are you offering and what kind of designs are you offering. So we are very realistic. We are very relatively -- we're talking about that. We're just not talking about prices. We are also talking about product, fashion, quality because even that do cost. Even bringing our new design, good design, bringing in a better quality, bringing in a better look and feel to the store, better service standards at the store, all of those do cost you. So all of those are -- there is also a cost and there has to be some differentiator. And that differentiator also gives the cost. So we will balance most of them. But don't -- please don't -- I would just want to remind you don't start still chasing those pre-COVID numbers. The days were different. This age is different. So [Foreign Language]. So a little better that -- we do compare year-on-year methodology only. Those were times when you were alone in your market, a lot of markets were there where you had a monopoly. Now is not the time where you had those complete state. But anyway, I think if our same-store sales growth continues, we definitely would not want to surpass any double-digit margin numbers. Maybe we'll definitely want to retain that number, but pass on all of those value benefits to the consumer so that the consumer keeps trusting us and keep coming back to us because you will see -- because even now we see because even there are 7 to 8 stores opened up in a lane, customer comes in at V-Mart, looks at V-Mart product, goes back to a competitor, looks at the competition, comes back once again to V-Mart and then buys it. And that's what we want. They should compare, they should understand. They should understand and look at the entire market. But they will do it 1 or 2 times. Once they have a trust that V-Mart is always better and V-Mart is always better in quality also, then they will not start -- they will stop checking also with other competitors. So that's what we want in the future course.

Very useful, sir, very clear on this. Sir, just one last quick question is on the competition and your comparable performance. So of course, we have 500 stores across multiple markets. On the ground, can you tell me, sir, how is the performance like-to-like? Are we growing at par with the market? Are we growing in certain markets higher or any markets lower? Just a general sense in terms of how is the comparison on a like-to-like basis on the ground because, obviously, on our overall portfolio, things can be very different because of the presence of different peers in different markets. But on a like-to-like basis, if you have any insights to share.

See, I mean, as Anand mentioned, because the quarter saw Durga Puja in the quarter 2 [Foreign Language] sales had gone into that. So we saw a little lesser like-for-like growth in the Eastern market -- Eastern India market. We saw very good growth in the Northern India market because the base for us also is lower in the Northern India market. And some of our new initiatives, some of our financial initiatives, some of those quality-led initiatives has really helped to grow that market a little better. We saw a good growth even in our Unlimited market. South India has shown growth. Within South India, Tamil Nadu has been a very good market. Telangana continues to struggle for us. Telangana is not giving us a great response. So there are markets which has really done well. There are markets, which has been almost on an average. UP was struggling until last quarter -- or last, last quarter. But UP has come back, UP has started growing. So I think UP is giving us -- because UPS has a lot of -- we have a big base in UP. So UP has shown up. From a competitive perspective, we have seen -- I mean, most of the major competitors in spite of their good growth or their -- a lot of new store openings that has -- we have seen, we still see a good growth coming in from those stores as well. So I think the stores which gets opened up, even in the similar -- same wall of our store, we see a lot of more customers coming into that market, more customers trying that stores. So I think it is a function of market becoming bigger and that is ultimately leading into -- everybody's growth. So that is what we are also seeing, and that should continue. There could be some disturbance in a particular market, but otherwise, most of the markets have really grown well.

The next question is from the line of Sameer Gupta from IIFL Capital Services.

Sir, firstly, just your comment on Unlimited. I noticed that sales per square feet in V-Mart is still 30% higher than Unlimited. These are the numbers that you reported in the presentation. Now in the media interview earlier today, I heard Anand say that margins in Unlimited are now at par with V-Mart. So was this comment meant only for the new stores that you have opened in Unlimited? And can I just ask the pre-IND AS EBITDA margin level? Any particular range that you can give for the older store group that you had originally acquired? And I believe that, that number is less than 60 stores now. So just some color on this aspect, sir.

Yes, Sameer, you are absolutely right. I think that comment was more in terms of the new stores that we are opening in South. And that number is quite heartening and it is almost at par or even better than V-Mart stores. This is the new stores that we are opening in South and the Unlimited. And yes, the older stores are still tracking well below the norm. Their sales for square feet is also slightly lower than the new stores that we are opening. And the expenditure or the overheads, they are also slightly more because of the higher square footage area. So the area size is slightly bigger. The catchment is more Tier 1, and thereby, the pre-IND AS EBITDA still is lower than the planned average for the Unlimited chain. But as I have said in the past as well, we continue to build on new stores in South. The new stores have better sales per square feet, and therefore, better profitability. And as the proportion of new stores keep increasing, the overall profitability level for Unlimited as a segment will keep on getting better and keep getting into or -- comparable to V-Mart.

Sir, just a follow-up here. So this older cohort of stores, let's say, I mean, what I remember is around 58, you can correct me if I'm wrong, at let's say, less than 5% margin on a pre-IND AS basis, the ROCE profile of the store would still be less than or sub 10%. So do we keep -- like beyond a point, do we keep these in the system because now it's been like 3, 4 years and we have waited around for them to turn around? Or is it an acceptable outcome that, okay, it's a sub 10%, but still they are not making losses, so we'll still keep them in the system.

So Sameer, it's been a journey. So it's not like -- see, there's a lot of internal review around each of the stores that we run. And especially for the Unlimited stores that we took over, there were many, many hard calls that we have already taken in the last 2 years. We've already closed more than 20 stores in that chain. And whatever stores that we felt required surgical action, that has already been taken. The number of stores that we now continue to run are strategically important, are important from different perspectives and they are not loss-making. And we have faith and believe that we will be able to turn them around even better. So it's just a matter of time, but we are not building an aspirations of INR 1,000 sales per square feet in these stores. But there are priorities, there are importances. Because of this, these stores will continue to run, but they are not loss-making. They are profitable. Their profitability profile may be marginally be lower, but they will also come at par.

Got it, sir. This is very, very helpful. One last question, sir, from me. There's one large retailer, Reliance, which has been consolidating its store footprint and I believe some of it might be in the apparel retail as well. So just wanted to understand from you, is there a meaningful difference between the set of stores where, let's say, a Reliance used to be there and now it is not there versus where there is no Reliance in the vicinity, just this aspect, sir?

So for the matter, when we speak in the operations team, they say Reliance is only present. So Reliance is everywhere. Whether they perform or not perform is a different question. There is a lot of change in the strategy in terms of Reliance. So we -- the consumers are also confused, the store people are also confused. I feel Reliance has gone out of our bracket because their average selling price is almost 60%, 70% higher than our selling price. So it is not becoming too relevant anymore. But yes, definitely, some of the Reliance degrowth or store getting closed do add up some number to our store, and then we see some betterment there.

The next question is from the line of Lokesh Manik from Vallum Capital.

My first question was continuing from the previous participant. So the sales per square feet 9 months Unlimited is somewhere around INR 500 versus V-Mart at INR 700...

Lokesh, are you speaking on the speaker phone? You are echo-ey.

Is this better now?

Yes.

Yes. So the sales per square feet, Unlimited is at INR 500 versus V-Mart at INR 700, whereas the ASP is almost doubled. Now that difference can be alluded to the volume. So just wanted to understand that is this more external where the consumer market is such that it's not more volume driven? Or is it more internal at our end where we need to make further changes to increase the volume throughput? And your view on whether it can come to INR 700, INR 800 per square feet 3 to 5 years down the line?

So Lokesh, we all know that Unlimited market, one, the per capita income of the consumers in Southern India is also higher, number one. Number two, the market there, we offer a differentiated product, which has a little higher margin also. And three, we also house there some branded products, which is called partner brand business, where some of the known brands in the market have been given some space in terms of shop-in-shop kind of model, which brings in almost 18% to 19% of Unlimited's revenue, which is at a higher ASP. So that including all of those, the ASP level looks much higher. And definitely, if you see the last 4 quarters, you must be noticing there is a sharp drop in ASP of Unlimited. And that is the focus that we are bringing in, that how do we give more -- the consumer the more share of our kind of product, which is a V-Mart kind of product and bring down the prices. So that is how we are trying to first get the little more mass audience, little more lower per capita consumer segment and a little more youth into our stores. And that is what we are trying to do. That is how we are also seeing some growth, which is coming in even this quarter, we reported 11% growth coming in from Unlimited market. And we are seeing very good response from such kind of stores. So we believe the Unlimited this particular quarter has almost given greater than INR 650 per square feet of sales. We believe we should be able to bring it to that level of V-Mart maybe in the next 2 years. So that is what we will want to do. But yes, the delta or the delta will be there -- there will be a difference between both of them sales per square feet. Yes, but we are nearing to our proposition. Once the consumer there understands our proposition well, we will want to then slowly and gradually decrease the share of the bigger brands or the partner brands because anyway our propositions are also similar to the partner brand, but only the brand has a brand value where in the South the consumers still value that particular product.

Understood. Lalit-ji, the second question was on -- in the past 2 years, we've been focusing a lot on merchandising. So on the sourcing front, we may have even partnered with some of the suppliers who are supplying to our competitors who are doing well at that period of time. How has been your experience from a quality perspective getting these new suppliers into the system and seeing how their quality is indexing with the past V-Mart suppliers? How has that difference been in your view?

It has been a very tough journey, Lokesh. It has not been very easy to bring in change management in smaller entrepreneurs across India and that is the toughest part of growing up and becoming organized is bringing them on the compliance, bringing them on sustainability, bringing them on the quality parameters, bringing them on scalability part. So we've done a lot of workshop with the vendors across cities because, as we speak, there is a workshop going on in Piripur. We keep doing workshops across cities. I have participated myself also in 2 or 3 workshops because we keep giving them those instructions, keep teaching them all things. There is a complete big team, which is a quality team, which is a technical team, which helps them goes down to make -- create better processes for them, create better quality parameters for them. And then definitely, we have taken a little more stricter measure on the acceptance of quality norm and what quality can be accepted, how do we test, how do we try out those products. So there's been a lot of shift. There was definitely a lot of resistance. There has been a lot of rejection. Last year, we faced a lot of shortages of inventory because the product got rejected and people were not able to supply us in time. So some of these problems where there. Our existing suppliers have really come up well. And even we have brought in a lot of new suppliers. And we are seeing a lot of betterment in all of those. And that is what we want to give. Ultimately, our consumer trusts V-Mart and we should not be giving them anything which is substandard. That is our goal and that is our motto.

No, fair enough, Lalit-ji because that correlates to the point that your customer comes back to you after experimenting everybody else. I was just trying to understand if these new suppliers, the quality was much lower to what they were supplying to the other competitors and are they facing difficulty matching V-Mart standards? And at the price point, more cost conscious.

Everything is doable. It just requires better processes and better care. So that's all. It is an intention issue and then a discipline issue. So if that is -- it doesn't cost too much. It is only...

There have been -- you have put some of them out of the system, the new ones if they did not match and...

Definitely. Almost 20% of the vendors have got blacklisted.

Ladies and gentlemen, due to time constraint, this was the last question for today's conference call. I now hand the conference over to the management for closing comments.

Well, thank you so much for being there. We have spoken enough and a lot of inputs are being given. Not too many retailers come out and speak to all the analysts and bring out the detailed data. We do give them. I would appreciate if people have a little more trust in us, and then we will continue definitely giving our -- being more transparent, being more agile in terms of providing the data. But yes, there may be a few things that we would want to now strategize and work, which every time is difficult to open up, but yes, we'll continue doing that, being -- thank you for being patient-full with us and we will continue delivering the best value proposition to all our ecosystem -- entire ecosystem. Thank you so much. Have a good day.

Thank you. Bye.

On behalf of IIFL Capital Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.