V2 Retail Limited (V2RETAIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to V2 Retail Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Manshu Tandon, CEO. Thank you, and over to you, sir.

Hi. Good morning, everyone. A very warm welcome to our Q4 FY '21 earnings conference call. I hope you all are staying safe and healthy through this unusual and challenging times. Along with me, I have Mr. Akash Agarwal, Whole-time Director and CFO; and our Investor Relations team. I hope everyone has had an opportunity to look at our results. The presentation and press release have been uploaded on the stock exchanges and our company's website. So let me start with the key updates. The company opened 8 new stores and closed 1 nonprofitable store during Q4 FY '21. As on March 31, '21, the company operates 95 stores spread across 16 states and 83 cities with a total retail area of 10 lakh square feet. Same-store sales growth for the Q4 '21 stood at 25%. We were witnessing continuous improvement in demand when the lockdowns were announced due to second wave of COVID by end of March or start of April. Due to lockdown had related restrictions operation at majority of our stores are impacted during Q1 FY '22. Further out, our latest store addition for Q1 FY '22 were also delayed due to sudden lockdown. So we have seen significant pickup also from our online platform V2kart.com. So now I'll ask [ Punit ] to give you all an overview of our operational performance during the quarter. So stand-alone performance highlight for Q4 FY '21 was total [indiscernible] Q4 '21 is INR 189 crores as compared to [ INR 129 crores ] for Q4 FY '20. Gross margin stood at 22.1% in Q4 '20 (sic) [ Q4 '21 ] as compared to 22.9% in Q4 '20. EBITDA for Q4 stood at INR 12.3 crores as compared to INR 3.7 crores Q4 FY '20. EBITDA margin stood at 8 -- 6.5% for Q4 '21 as compared to 2.8% for Q4 FY '20. As a prudent measure [indiscernible] limited at over INR 9.15 crores during the FY '21 under review. PAT for Q4 stood at a negative INR 8.6 crores as compared to a negative INR 11.6 crores. PAT for FY '21 stood at negative INR 11 crores as compared to positive INR 10 crores in FY '20. So with this, I now leave the floor open for questions.

[Operator Instructions] The first question is from the line of Priyanka Trivedi from Antique Stockbroking.

My first question is on the gross margin. So we had witnessed around 81 basis points of contraction in gross margin. So what has led to this impact? Like was it because of higher input cost? Or have we taken any inventory provisioning or the limits of higher discounting? So what led to the contraction?

Yes. So if you look at the Q4 FY '20 gross margin, it was 22.9%, and it came down to 22.1%. So first of all, the main reason for that was we had to put heavy discounts on winter goods because the kind of demand uptake in winter that we saw in November and December did carry on, on the second latter part of December and January. So we didn't want to be -- have an excess winter inventory on our books. We had to run deep discounting on all the winter and pre-winter goods because after the 15th of December, we saw the demand certainly go down and there were some weather changes also. So that was the first reason. And second, in a lot of our stores, we don't see the footfalls coming back to pre-COVID level. And we had to run some special discounts in those particular stores to get the footfall back and get back to pre-COVID levels. So these were the 2 main steps that we took to increase sales that had a negative impact on the gross margin.

Okay, got it. And my second question is that we have witnessed a significant increase in our inventory levels. So what has led to this increase basically in comparison to FY '20?

Yes. So generally, we keep an inventory days of 90 days for our retail business, which translates to around INR 2,100 to INR 2,200 per square feet of inventory, per square feet. So that totals to around INR 225 crores of inventory. And we had plans to open 8 to 10 new stores in quarter 1 of FY '22, which obviously didn't happen because of the certain restrictions. So we had bought the inventory for those stores in advance. And we had also stopped the inventory for the wedding and the summer season in advance. And we had also kept about INR 15 crores of inventory separately for e-commerce business. So due to this, the inventory was around INR 265 crores.

So are we expecting it to normalize in FY '20 -- by the end of FY '21 to our normalized sales? Or is it expected to be around similar levels?

So if you look at -- if we get normalized sales and if we look at the inventory days according to normalized sales and pre-COVID sales, then the inventory should be always between 90 to 100 days. That's the target.

Okay. Okay. Okay. And my last question is that do we still maintain 15 to 20 store addition plans in FY '21?

So it's a very volatile situation right now, and it's very hard to predict anything for FY '21. But we have already signed agreements for the 8 stores that were supposed to open. So we will open those 8 stores. And I think the total number of stores we'll open this year would be 10 to 12 stores.

10 to 12 stores. Okay. Okay. Got it, that's it from my side, I'll come back in queue.

The next question is from the line of Faisal Hawa from H. G. Hawa & Company.

Yes. So how are we going to really face the onslaught of Jio through Kirana stores and they can be catering to so many more pin codes through this Jio arrangements, and they seem to be doing quite well with the initial launches. So will we not be at a disadvantage with the physical stores and with staff and stuff? And do you also not envisage that we could face a real big problem in sourcing properly from our vendors also because of our lower volumes?

Sorry, you need to be louder. I didn't understand half of the question.

I'm sorry. So how are you going to face the onslaught of JioMart, which will now be catering to many more pin codes through their Kirana combination? They will be having a much better sourcing arrangements and even the fixed cost will be probably much lesser.

Yes. So I think JioMart would be a wrong comparison because they are focused completely into FMCG. We don't sell FMCG except in 6...

Yes, but it's only going to be a matter of time that they penetrate garments and it's like Amazon started with books but they actually penetrated to everything in very little time.

So -- but the growth rate at which e-commerce is growing. I think there will be space for a lot more players. And the full shift from the unorganized sector happening into the organized sector that major chunk is happening through online and e-commerce retail. So we want to build an omnichannel business where we will service the pin codes where our stores are present through our stores. And if a customer is coming from a city where we don't have any stores, we'll send the goods from our warehouse. So I think the kind of sourcing we have and the kind of product mix and the price -- pricing strategy that we operate in, so we are still like -- that's the same way how we are surviving in off-line retail. So there is Reliance Trend, there's MAX, there is FBB but we still have our niche, and we still have a different customer segment that we cater to. The same way we can have that target [Technical Difficulty] I think it will be a huge space in the coming years, which can be occupied with multiple large players.

And can you give me 2 examples of very good decisions that we may have taken at store level to really empower the store level manager?

2 decisions to empower the store level manager? Did I hear that right?

Yes, yes, yes. Absolutely.

Yes. So one of the biggest things that we took -- undertook and we drove that across all our stores was liquidation of old aging inventory because we felt that the space that it takes is a huge opportunity cost because another article or another design could go in the same space and sell within 15 days. So what we have taken in a big way is liquidation of old inventory. So we have built a system where the store manager can raise the request for any article or any design or any color that is not selling well at his store and then get approval within 48 hours. And that is why we don't have any special end of season sales. Whenever you walk into a V2 sale, we have a designated area for a discounted article. So there's a much better churning of inventory. So I would say the percentage of inventory that was 1 year old, maybe 1 year back at our stores has drastically come down this year, which helps us get better per square feet sales.

[Operator Instructions] The next question is from the line of Himanshu Shah from Dolat Capital.

Sir, our consolidated PBT loss is higher than our stand-alone loss or is it due to the losses in the manufacturing subsidiary that we have created?

Yes. In the consolidated, I think the difference is INR 1.5 crores. That is for the [ V2S ], the subsidiary.

So the manufacturing operation loss is only INR 1.5 crore because I was going through presentation and PBT loss probably the difference was somewhere around INR 18 crores, INR 20 crores.

Yes, let me just check the figures, but it cannot be a difference of INR 18 crores, INR 20 crores. I think you must have looked at a wrong figure.

Because sir it's showing INR 33 crore PBT loss for FY '21 in console and in stand-alone, it is showing PBT loss of INR 13 crores.

So you're talking about IndAS figures, right?

No, I'm comparing, sir, post IndAS figure slide from the presentation.

Okay. Just give me a second.

Sir, it's on Slide #10 and Slide #13.

So consolidated PBT is INR 15.2 crores for the whole year, negative loss.

INR 15.2 crores.

Yes.

Okay. I don't know, sir, but the presentation is showing INR 33.3 crores PBT loss. So I was just going through that number.

Okay. So there might be some misprint on the presentation, but I have the results right in front of me. It's INR 15.29 crores loss consolidated for the whole year.

Fair enough, sir. Because in financial release, we are not able to see the number, sir. Numbers are...

And [indiscernible] is INR 13 crores negative. So there's a difference of about INR 2 crores.

Okay. Fine. Fine. Sir, I think so then that is -- this is fine. Sir, second thing, over last 4 years, we have closed almost 20 stores. And if I include this particular quarter, the ongoing quarter, near about 23 stores, we have already closed. Now 1 of our competitor, which is also listed entity, they -- who are 3x of our size, they have probably closed just 25 stores since their inception. So any specific reason why there has been so much of store closures for us?

Yes. So there are 2, 3 reasons. One is obviously loss-making stores. We need to take decision on the loss-making store, and we take it in our plans itself that if we open 100 stores, we will have to foreclose out 5 or 6 of them because the cost of closing down a store is about INR 250 to INR 300 per square feet. So that can be recovered easily within 3 to 4, 5 months. And the second reason was a lot of vendors -- a lot of landlords didn't want to renegotiate during the last lockdown. So what we did was essentially, we moved to a new building in the same city. So I think 6 of the stores that we have closed, we have moved to a better location in the same city because the landlords were not willing to give us concessions during the lockdown or renegotiate rent. So that was the second biggest reason.

The next question is from the line of Apurva Mehta from A M Investments.

Yes, sir, just wanted to see how much savings are sustainable savings going forward like rent or on the employee side or whatever cost cutting we have done in maybe last year. How much would it be sustainable [indiscernible]?

So all the concessions and the benefit that we got was only agreed upon till March of this year. So we are renegotiating rent with landlords at about 50% of the locations, we've already been able to do that. But lockdown was much more extended last year. So I think this year, we'll see the expenses normalize to about INR 170 to INR 175 per square feet none of those concessions have been carried forward to this year.

Okay. Okay. And what is the normalized gross margin, we would be doing for the yearly basis, if you want to just ballpark our figures for next 2, 3 years? And any scope of expansion in that?

So the target gross margin that we look at and where we are planning for the next 2 to 3 years is about 31% to 32%. Any other benefit that we get from our manufacturing or from our vendors we pass on to the consumer. Like we would prefer having a higher per square feet sales than a higher gross margin. So the gross margin target is 31% to 32%.

Okay. Okay. Okay. And on the omnichannel, are we willing to expand on our own channel or we are also ready to even collaborate with something like Amazon or Flipkart or something like that?

So Amazon and Flipkart are marketplaces, but we only sell our own inventory and our own assortment that we sell at our stores. So when I say omnichannel, it basically means that we will service the pin codes that we use and leverage the store inventory. And 35% of our orders come from cities where we have a store present so we'll be starting deliveries from there. So the customer can order and get the delivery within 3 to 4 hours. And we've also save on the logistic costs. And the customer that [indiscernible] where we don't have a store we send them the package directly from our warehouse. So that is the model we want going ahead. And we don't want to burn cash in e-commerce or omnichannel business, but we want to have a focus there and grow it gradually. So it was about 2.5% in FY '20. And going forward, we want it to be anywhere between 5% to 10% of our own business.

Okay. Okay. So last year what we did is 21% it was how much?

Sorry?

Last year it was how much?

2.5%.

2.5%, okay. And on the store expansion plan, we would be maintaining around the 10,000 square feet kind of thing or we will try to open smaller store also?

So that look at it about 8,000 to 12,000 square feet. So I think going forward, we look at the same size because it has worked historically for us.

Okay. Okay. And our goal of reaching this INR 1,000 crores kind of turnover. Seeing the current situation, would you like to revise it? And what will be -- what kind of revision you'll see that?

Sorry, I couldn't understand what you said?

The INR 1,000 crores revenue target, we are targeting INR 1,000 crores revenue and 10% EBITDA margin on the normalized sales, that was our target. So [indiscernible]...

[Technical Difficulty] yes because this is totally unforeseen circumstances again [Technical Difficulty] has totally been under lockdown, all our stores were shut. So I think the INR 1,000 crores, 10% EBITDA margin target has moved for '22 now. So again, just about quantitating our losses and just surviving and coming out of this lockdown and COVID the pandemic.

So how was the take away and maybe June, can you show some light how was the footfall and even how many stores are open now, something, some color on the quarter 1 kind of thing?

Yes. So basically, about 70 of our stores have opened and we have seen the sales ranging from about 40% to 70% already in those stores. So what we are foreseeing is from September, we can see the sales come back to the pre-COVID level. So we are betting big on Q3 because Q1 was down the drain for us, and we just want to have a good Q3. That's what we're planning for, but it's very encouraging the kind of footfalls and sales that we have seen recovering already in June. So I think by September, we should see the sales go back to the pre-COVID levels.

The next question is from the line of V.P. Rajesh from Banyan Capital.

So Akash, my first question was regarding the e-commerce. Have you seen an uptick in the last 3 months since the stores were not open? So if you can just give some comment on that.

Yes. So during the lockdown, we definitely see a better conversion rate. So we saw growth in the conversion rate of our website, and we had a good inventory at our warehouse. So we saw a good growth in our e-commerce business. That's why I said last year, it was 2.5%. But the target for us this year is anywhere between 5% to 10%. So I think it will be a decent number. And going forward, we want to bet big on this business also because it is the future, and we are seeing the trend all around the world and people are getting more comfortable buying from home, and it is just a more convenient way. So once they have a trust on your brand, so I think it becomes a lot easier for them to be served right where they're staying and not having the hassle to go to the store. But omnichannel approach will be the best way to go. So giving them an off-line as well as an online omnichannel experience in terms of marketing, in terms of loyalty, CRM and the completely integrated experience basically. So to answer your question, yes, we did see a very good demand uptick during the lockdown, and we are hoping that it continues even after the stores open.

And what's the guidance on the profitability of the e-commerce channel?

So when I say 5% to 10% of sales, we are looking at 0% EBITDA in our e-commerce business because you can say in that part of our business, we are betting on the future. So we don't want to burn cash also, but we are taking our EBITDA guidance of 0% in that sale because it's all about aspiring the customer and then getting the lifetime value out of them. So right now it's the time to acquire them and retain them and make them loyal to our brand.

So what is our membership base now on the e-commerce channel?

Sorry?

What is the base of members that we have wherein you said you're spending to acquire these customers. So I'm sure you have a database to capture the information of the members. So if you can just give some color on that, like how many members and what is sort of the repeat rate, et cetera.

So we have a database of about 7 lakh consumers just online, which doesn't overlap with our offline database. That is all newly acquired customers. So we're looking to grow this to about 2 million to 3 million in the next few months.

Okay. Okay. And my last question is on the inventory number, in the stand-alone the figure is INR 265 crores but in the consol, it is around INR 300 crores, so bent of about INR 35 crores. Can you just comment on that? Is that just for e-com or something else?

No, that is the inventory of the subsidiary. So basically, the sales contribution of our subsidiary right now in our retail business is about 10%. So we want to increase it to 20%. So the sales target for the subsidiary is about INR 100 crores so it boils down to about 3 to 4 months of inventory as raw materials and other things in the subsidiary.

This is your manufacturing subsidiary or consolidated which subsidiary?

Yes, manufacturing subsidiary.

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

Yes. My first question, just wanted to understand your thoughts with respect to how do we differentiate ourselves in the light of Trends or VMart or [indiscernible] more customers from...

[Operator Instructions]

Yes. So my question was just on understanding this loss of players to how do we look at the competition? How do you look ourselves with respect versus competition like Trends or a VMart, what attracts customers to our store versus that of the competition? Is it like a price points plus product mix? Any color on that?

So you took 2 names there first of all I think their average selling price is about 70%, 80% higher than our average selling price. So there's a very small overlap in the kind of customers that we both cater to. But VMart is a direct competitor, and it's in a very similar space. But when you ask like what attracts the customer, I would say, as the middle class in India is booming, everyone has more disposable income. So the first thing that they [ will seek is apparel ] so I think value fashion is going to be a very, very good space. And it's all about who is able to establish their brand and who has a better assortment and who is able to get into the minds of the consumers better. So -- and it's going to be such a huge segment that it can easily have multiple mid and medium-level players because everybody -- because of globalization, Internet penetration, everybody wants to look good. So it's like a -- like fashion is a huge thing. It depends on personality. It's all about how you perceive yourself and how others perceive you. So I think apparel and fashion plays a big, big role in that. And as aspirations of people going up so like we want to be a prominent player in that space. So right now, I would say we haven't been able to create much big differentiation with the better competitors that we have. But the plan is in the next 2 to 3 years to create a space where V2 stands out and we have a competitive advantage and we can deliver better numbers than the others.

Right. Right. Just 1 more question on the store expansion front that you talked about, the new stores that you're planning to add, will that be on the existing geographies or we are planning to further expand and penetrate into newer markets?

No, all of them are in existing geographies that we're already present in, and our stores already do well in. So that helps us with marketing, transportation and a lot of other synergies. So we're not going into new geographies or new regions, all of the stores are in clusters that we are already present in.

Correct. Correct. And just 1 last question. Sir, means we have seen a spectacular performance in this 4Q as we mentioned, VMart as a direct competition, the performance of VMart was quite muted with respect to whereas we saw a 25% year-on-year growth. Any specific reason? Would you -- would you like to attribute this to?

That 25% is a seeding figure because last year, the lockdown started around 18th of March. So this year, we got the full 90 days sales. So I wouldn't say that. But even if you remove those 14, 15 days, we saw a good -- like a positive SSG. But I think we took a lot of steps that we spoke about last year. And that had a positive impact on the footfalls and the sales and the conversions that we saw at the store level. So I think we had good plans for this year as well. But again, COVID spoilt the party but we are hopeful and we are very positive and looking at the sales that we've already started getting with the stores that have been opening even with restrictions about closing at 6:00 p.m. or opening on alternate days. So it means that the consumers are coming back to the stores. So I'm hoping that the rest of the 9 months of this year can be good.

Sure. Sure. And just 1 last question if I can punch in. Sir, what are the store level EBITDA margins that we make on an average?

So if you talk about pre-COVID levels at the company level EBITDA margin that we made was about 7%, 8%, and the store level EBITDA margin that we made was about 13%, 14%.

The next question is from the line of [ Tivish Khandelwal from NEOi Aqua Mutual Fund ].

Sir, my question has been answered, but just to understand a little better on the demand scenario. Since we cater to the nonmetro cities where the impact of second wave is higher versus last year. So as you mentioned, I mean, the footfalls have increased. So the number that you mentioned about 40% to 70% is respect to what?

So some stores, we have seen 40% sales, some stores we have seen 60% sales, and we have seen the sales coming back up to 70%. So it depends on the region, Like a lot of regions have more restriction. So there, the sales are almost half of pre-COVID levels. And a lot of places, the sales have almost recovered to 70%, 75% of pre-COVID levels.That's what I meant by 40% to 70%.

So I mean, sir, the impact is a little less as what was predicted. I mean, in the second wave according to you?

I wouldn't say that like the stores being shut since for almost 65, 70 days, that impacts a lot. But all I meant was last year, the lockdown was extended. So I think the opening up started happening at around July end. But this year, it's sooner than last year and hoping that there's no third wave and having a positive outlook for the rest of the year.

And you're expecting to hit the pre-COVID level by September?

Yes.

Sir, next question is what's the current contribution from e-commerce?

So last year, it was about 2.5%.

And you're expecting it to take it, to? Any number?

5% to 10% this year.

[Operator Instructions] The next question is from the line of Jaspreet Singh Arora from Equentis PMS.

Akash, just on that store opened currently, you mentioned out of 95, 70 are opened currently?

Yes. So about 65 to 70 opened [indiscernible]...

No, but I thought that all parts of India is open today. So why would the balance 25% be closed? Or are you saying that they are under restricted hours? Is that what you mean?

Yes, because we have stores in the South as well and Odisha is still under a lockdown. So we have, I think, 14 stores in Odisha and a couple of locations in the Northeast. So all of India has not opened yet, but we're hoping to have that soon. So I think in the next couple of weeks, all the stores will be open.

Okay. So it's South, Northeast and parts of Odisha, which is where the stores are completely shut today?

Not completely short, a few stores are open, so like Bhuvaneshwar is shut, Cuttack is shut and we have 3 stores in Bhuvaneshwar, so it depends on the cities. So there's partial lockdowns, not the complete state.

Okay. Okay. Understood. Understood. Okay. And in terms of the store addition, you gave some broad guidance/target. I missed that. Sorry, how much you plan to open in the current financial year?

This rest of the year, we'll open at about 10 to 12 new stores.

10 to 12 against, I think, 27 last year?

Yes.

So was that 27 a one-off or are we saying that we will probably relook at this number maybe around September?

Yes. So that 27 wasn't a one-off. We planned to open 20 to 25 this year also. But looking at the situation, and there's no prediction about the third wave. So we said we will look at the situation and then decide on further expansion. So we'll just open the stores that we've already finalized, so which is about 8 to 9 and maybe 3, 4 new stores, but we'll take a decision again depending on how the demand is in Q3.

Okay. Okay. So let's say, closer to the -- towards the end of this calendar year once there is far more clarity, then you would want to go back to that 25 to 30 store additions per annum. Would that be fair?

Exactly. We want to grow at about 20% every year, out of which 15% will be from new store additions and 5%, we want as a positive SSG same-store sales growth. So that is the target for the next few years.

Sir you said 15 -- sorry, 15% to 20%?

I said we want the revenue to grow at about 20% every year for the next few years. Out of which 15% will be from new stores addition and 5% will be from the same-store sales growth.

Okay. So then in that case, on a store, I think we are at 95% now. So it comes down to 15%, right?

So all the stores don't open in the first month of the financial year, right? So if you want to grow at 20%, you have to open 25, 30 stores because some stores are only open for 3 months, some stores are only open for 6 months. So if you calculate it, you'll have to open more stores.

Okay. Okay. Okay. So okay, this is the gross numbers that you're seeing probably then you'll also have certain store closures. That's 1 point you're looking at the other point is you will be looking at a addition basis maybe at a 1-year lag because you would probably take 12 months or more for a store to mature, these are 2 things you're saying?

No, what I'm saying is, for example, if I have 100 stores, and if I want 15% extra revenue from new stores, so that doesn't mean that if I open 15 stores during the year, I'll get 15% sales growth because [indiscernible] stores will have only 6 months, 3 months.

Therefore, you would take an average of the previous 2 or 3 years, right? That's all.

Yes.

On that base, you're trying to grow 15%, right? Is that what your point?

[indiscernible] 20% and if I want 15% extra sales from new stores, I will have to open at least 20% to 25% new area.

Sure, sure. And in terms of the sales per square foot, maybe you would have discussed as I'm just dialing in after a couple of quarters lag. Even pre-COVID this number has -- on an annualized basis, this number has dropped from INR 1,100 a square foot to less than INR 700. Even Q4, I think, was, I think, around less than INR 700. So is this a change in the assortment mix at a store level that's led to this drop? And what's the outlook, let's say, on a steady-state basis from next financial year, assuming that's a very normalized year.

So the target that we're taking for the next couple of years is INR 700 per square feet. And I would say that the INR 1,100 number that you're looking at that the situation there then and the competitive intensity then was quite different. And the whole business outlook and the industry outlook was different. So most of the locations that we were in, there were only 1 or 2 players operating and now there are maybe 8 to 10. So I think even with INR 700, INR 750 per square feet of sales, we can target a good EBITDA number of 9%, 10%. So I think that is the internal target that we've taken. But obviously, the long-term plan is to take this INR 700 square feet to about INR 1,000 per square feet.

The competitive intensity goes back to the same as it was earlier?

No.

What would be the other way to driver for this?

How able are we to establish our brand and create a competitive advantage because competition intensity is going to be there. So it's about making us stronger and investing in the brand value and the brand equity so that customers are able to connect with us more because after 2 years of lockdown, a lot of smaller players are in distress. So I think the whole industry is also going to consolidate. So the few people that are going to come out will be stronger and can have that edge.

All right, sir. So are there opportunities there sir in such distress where you could might win in terms of M&A, where you expected exploring?

We have not thought about that. But we're not exploring that option as of now because the main equity for any brand in this space is the location. So if we feel that there are still locations available where our brand is present, it always makes sense to you get a new location and invest the CapEx on your own. Until and unless you're getting a deal at a very, very bargain price, that makes sense.

Sure, sure, sure. And just a quick last one. This gross margin in Q3 was 36%, now it's 22% in this quarter. So this is typically a seasonality of affair because of high sales of winter wear in Q3, is that the larger reason?

Yes, Q4 always has the lowest margin because all of January is a discount on vendor and pre-winter and February is discount on last year's summer goods. So 2 months are heavily discounted months. So that is why we see an anomaly in Q4.

While Q3 doesn't have as much discounted, and it's largely fresh sales of winter wear?

Q4 is like the main -- Q3 is like the main season like everything is sold on full price. There are hardly any discounts.

The next question is from the line of [ Mahesh Kabra from Pollatha Investments ]

The question is about your e-commerce venture. You said you have 2.5% contribution from -- of revenue from e-commerce that would be roughly about INR 13 crores, INR 14 crores over 7 lakh customers. That means average selling cost would be INR 200. Is that right?

That's not right because we were just talking about the database. So a lot of customers, they register on our website, but they don't make the purchase.

Okay. So what would be your average selling price for customer in omni?

So the average order value online is about INR 600 and the average selling price is INR 235.

Okay. Okay. And with the -- second question was about the new stores that you said you have postponed because of the uncertainty of the uncertain situation, I just wanted to understand how much time normally it takes for you to open a new store once you decide to go for a location?

You have to repeat that question. I couldn't understand half the question.

So suppose you have shortlisted Jabalpur as your next potential satiating a new store, how much time it would take you for to open the store once you decide to go to Jabalpur?

So the turnaround time is about 90 days, but it depends like if it's a BTS like build-to-suit or is it raw a building. So it all depends on how much work needs to be done. But the average time required from finalizing the store to opening the store is about 90 days.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Yes, Akash, first of all the growth outlook that you gave a few minutes ago. My question is that how will we support that growth? Is it all going to be through internal accruals or debt? Or would you need equity financing as well?

So to grow like if there was no COVID and we got sales like pre-COVID levels then internal accruals are good enough to grow at about 20% that we -- that is our target for the next few years. So there is no need for additional debt or equity.

Okay. And my other question is that given we are already almost at the end of the quarter, would you say the inventory that you had in March, has that come down? Or is it low -- same or higher?

It is a little lower, but there's no significant change, obviously, because 2.5 months, most of the first quarter, all the stores were shut. So the sales didn't happen. And so I think the main impact will happen in Q2 because we are not purchasing any new inventory, and now the stores have started opening up, so the inventory levels will go down.

Okay. And do you foresee taking any write-downs on that inventory given it will be somewhat of a 5-, 6-month old products?

So we have taken extra provision. Even last year, we look an extra provision and this year also, we took an extra provision over and above the 1% of sales that we historically take. So whenever we get the stock count done, it has always been within the provisions that we already have. So I think in FY '21, we have taken a INR 9.15 crores of provision -- additional provision. So that will cover all the write-downs or discounting that needs to be done because of COVID.

So you're saying as of now because of a bad Q1, you don't expect any write downs in the inventory [indiscernible] the usual 1%?

No. So because of COVID itself, like last year, we took INR 9 crores extra provision. So all I'm saying is extra discounting or any kind of depreciation of inventory that happened due to COVID has already been taken care of in the results.

Okay. So that's what I'm saying. So in this year we are not expecting anything for the Q1 [indiscernible]?

Yes, yes.

The next question is from the line of Tejash Shah from Spark Capital.

I have 3 questions on largely pertaining to business model itself. So first, you spoke about on a normal state basis, 100 days of inventory days will be good enough. So just wanted to understand, in value retailing in general we -- the model itself has very low gross margin, low EBITDA. So just to be much more relevant to consumer from a value proposition perspective. So ideally, the trade-off should be seen on a higher inventory churn versus so-called not so value oriented brands in the market. So if they are also doing 3x inventory turn and we are also doing 3x. So where is the advantage of paying the value game here? That's the first question.

So that's a very good question. But I would say, when you open a store, even just the display stock, like to fill up the store, you need about INR 1,100 to INR 1,200 per square feet of inventory. So no matter what per square feet sales you get, you still have to fill up that display stock of the store. So I would say to get it lower, you'll have to get a higher per square feet sale. So to do more inventory turns in a year, we'll have to go from INR 1,100 per square feet to about INR 1,000 per square. That will get the inventory days from 95 days to almost 80 days. So that is the only avenue that we will get down the inventory because we feel that lowering the inventory levels at our stores will have a negative impact on the sales. Whereas the additional cost of carrying that inventory is just the interest cost on the paid inventory because half of it is paid off by the credit terms that we get from our vendors.

Sure. So when we look at models like Zudio and all, which are also playing in the same area or the same value market, their inventory turn at least on a lower base as of now seems to be better than what the established value retail players like us are doing. So is there any change in the model? Or is it -- does the curve plays out like that, that initially, you will have a good area, good locations and your turns will be better. And as you normalize and you scale that number will come down?

So I think Zudio's per square feet sale is more than INR 1,000 per square feet. So I think that is 1 of the big reasons why their inventory terms would be higher. But I would say it's not just that the initial stores will do well and then the subsequent stores will not do well. So like I said earlier, without the competition intensity, it was easy. But now obviously, you'll have to create some sort of advantage against your competitors so that the customers prefer you over them. So I think in the value segment, no 1 has yet come out as a market leader, where they can say that wherever they have a store, they get a higher per square feet sale than the peers. So I think everyone is working on that, and that is what is going to differentiate you with the competition. And that is what is going to get you to the INR 1,000 per square feet sales mark. And that is what is going to get your inventory days down. So I think that is the journey.

Sure. INR 1,000 is per month you are talking about, right?

Yes, INR 1,000 per month.

Okay. Second, obviously, Zudio model has also an advantage of that they are totally private label. So does that changes the equation in our favor? And what's your thought on going that path on label for us?

So the current pricing contribution in our business was about 35%, and we want to grow it to about 60%, 70% in the next 2 to 3 years. But I don't think like private label get your sales per square feet up or it gets you a better inventory turn. So because until and unless you build a brand, the customer is just coming to your store to get a value product at the best price. So it's -- more than the private label, it's about assortment, like even if I have a good assortment in my vendors label. It will still sell better than if I don't have a good design in my private label. So like I said, for better per square feet sales, it's not about private label, private label can be about exclusivity or brand reach or brand equity. But for better per square feet sales it's all about having the right size at the store, understanding the customers' buying behavior and what colors they're liking, what fits they're liking and implementing it at the store level. So it's getting down to that detail.

Sure. No, I meant perhaps private label compromises our or at least compensates on, on margin level, gross margin because you have -- you don't have third-party vendors or 2 or even if you have third-party vendors, you the whole brand control is under you. So I mean from that perspective, that not it pushes up your revenue per square feet perhaps, but it gives you much more control on inventory and margins to play around with.

So we mostly work with manufacturers itself. So even the products that we are not getting on private label, we are sourcing at the lowest cost. That is why we are able to sell at the current ASPs that we are selling at. So I wouldn't say that there's a huge margin like if we move into a private label, we wouldn't save on a lot of cost. Of course, if we manufacture it ourselves, then we would definitely save cost. But if you're working with a manufacturer and if I tell them to put my private label, that doesn't necessarily get down the cost.

Very detailed. Just last question. If we 2 years back or just before pre-COVID, none of the value retailers had this online plan even in their 3-year vision or short-term ranged plans also? And obviously, then the pandemic happened and the flow of business also shifted to online for most of the categories. So should we see this evolution for value retailers like us more of a tactical response or you are seeing the structural shift in the way consumer -- your consumer in particular, which was not an online consumer just 18 months back. He is also shifting to online for good, and hence, you are investing a lot of resources and energies behind that channel to be developed?

So I would say, definitely, there's a structural change. And you can see that by the examples of SHEIN and the other players around the world. And India is also seeing that boom now. And I think this pandemic has accelerated this process by at least 3 years. So the kind of online plans that everyone had for the next 3 years has -- they've been forced. Their hands have been forced to do that this year itself. And now I think everyone is realizing the importance of the channel, but it's a very hard [indiscernible]. So especially at low margins or low ASPs. So I think it's a good challenge to solve, and we are at it, and I think we're excited about this journey.

Yes. But do you think the way companies behave practically during the pandemic even consumers behave tactically based on the forced choices that they have to make? And especially the catchment area that we service and whatever understanding we have developed, it's a very price-sensitive and very, I would say, touch-and-feel kind of a customer and he can't take risk of ordering online and then getting delivery and then perhaps again resending it to you if the size doesn't fit. So do you believe that this whole trying to see structural trends in last 18 months, consumer behavior could be slightly misleading. And once things normalize, we'll go back to our old ways of interacting with the consumer and the brands.

So I would say like even I was under the same impression before I saw some data. And I would say the biggest change has been [indiscernible] and the young people so basically 18-year to 30-year-olds I think they're more comfortable in new technology and buying online. And of course, like sales might go down post restrictions are lifted, but the base has definitely increased. And it will keep increasing year-on-year, and online will take up a bigger chunk. And like I said, once the person has a trust on your brand then it becomes very easy for them to trust the fit, trust size, trust the quality and just order from the store. But of course, like the off-line experience is never -- it's going to be there. And that is why we want to cater to both kinds of customers. And that is why we will continue the store expansion as well as be present in online.

That was the last question. I would now like to hand the conference over to Mr. Akash Agarwal for closing comments.

I thank everyone for their time. And hopefully, this pandemic is over. And we hope we've been able to answer your questions, and I hope everyone stays safe. For any further information, I request you to get in touch with Marathon Capital. They are our Investor Relations Advisors. Thanks a lot.

Thank you. On behalf of V2 Retail Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.