V2 Retail Limited (V2RETAIL) Earnings Call Transcript & Summary

Yes. According to us, we have done -- in terms of per square feet sales, in terms of per square feet [indiscernible]. So I think we have done better than our closest competitors.

Sure. Secondly, could you share the inventory levels as of June versus March?

So the inventory is around INR 260 crores.

And what was the same number in March. Just for my influence.

INR 261 crores -- INR 265 crores, sorry.

Okay. And because of this lockdown and obviously sales being lower, will we need to make some more further provisions on the inventory? Because I'm sure some of the inventory would have gotten aged, not anticipated, for example, in the end of March quarter. So do you think that we will need to be some extra provisions further for the inventory write-down?

No. So in the last 12 months, we've already taken an extra provision of over INR 11 crores on top of the 1% provision that we already take. So I think that'll be enough and that will cover all the depreciation that we've seen because of the restrictions and stores not being operational.

Sure, sure. And in terms of number of days, is inventory now at the level which you would want to be? Or do you think that right now because of the impact of the second wave, currently, you're running a little higher in terms of inventory levels and over time, would want to reduce it?

So on a normalized scale, we want our inventory to be around 90 to 100 days. So that translates to about INR 220 crores to INR 230 crores of inventory. So that is our target.

Sure, sure. And how are we approaching the coming festive as well as the winter season? Are we going to be quite cautious? Because I think what has happened and not specific to V2, but I think across the industry, the second was quite unanticipated and everybody had a little higher inventory than when they are preparing for the season. And then the wave happened and everybody got impacted. So are we going to be approaching the festive and the winter season with a much more caution?

So because of the sales in July and what we're seeing in August, we are -- we have a very positive outlook in our Q3. And I think that should be a very strong quarter for us. And because of the volumes that we deal in, it's very hard for us to procure ready stocks and 35% of our sales are private label. So that has a lead time of about 60 to 90 days. So we have to plan in advance. And you can say it's a part of the business risk because COVID is a big contingency. And we can't not plan our season because of a third wave prediction. So we are very positive, and we are planning our festive season with full confidence. So I think it should be a good quarter for us.

Sure. And just lastly, we have been talking about product differentiation and working on in-house designing and also now [indiscernible] factory has one of the key differentiators in the next 2, 3 years, that will probably help us outperform and do much better than industry. So can you just update us where are we in that journey right now? And is it all going in the right direction and the speed of changes as for what you think?

Yes. So last year, our own factories contribution was only less than 5% of our total sales. And right now, on the current going run rate, we've already reached about 18%. And we want to increase this and go to 50%. So 50% of the goods in our stores will be designed, developed by in-house team. So I think for FY '23, our target is to take it up to almost 50%.

Are you going to share some data as to what is the normal shelf life or the response for the in-house labels and in-house production vis-a-vis what you get it outside?

So we have seen with the data that we have that -- We have seen that the products that are coming from our own factory is selling at, at least 20% to 25% faster rate. So the stock turnover ratio is much -- the number of days is much less for our own production goods. So the customers are liking it better and it has a better sell-through, and it is giving us a higher margin as well.

The next question is from the line of [ Bhavin ], an Individual Investor.

Just wanted to check with you, are you planning to capture any available opportunities in the market in terms of -- opportunities in terms of acquisitions or anything to capture the next level of growth? Or you just want to grow organically store by store from Vmart own channel itself -- sorry, V2 own channel itself?

We don't have any such plans, but it all depends on the circumstance and the kind of deal that we're getting. So we don't have any such plans.

What I mean to say is when you say you're getting -- are you looking out aggressively? Or are you open to looking at opportunities? Or you're just taking it one step at a time?

No, we are taking it one step at a time. So our target is to reach the INR 750 per square feet number and grow it 20% every year and eventually take that per square feet sales to about INR 1,000 per square feet and increase our EBIDTA percentage. So the target was to do it this year, but again, COVID spoiled the party. So the target for FY '23 now at INR 750 per square feet and INR 1,000 crores of sale.

And the second question I wanted to check is, how is your digital business standing out. What is the outlook which you're looking? Given the current circumstances and COVID still being around, how are you seeing that business going up?

Which business?

The digital business, online sales?

So like we've always had that stance that we don't want to burn money. We just want to have it as a complementary channel and leverage our inventory over that channel. So we did INR 12 crores of sale in Q1. But because our stores were not shut, it was a huge proportion of the rural sales. But going forward, our target is to have our e-commerce sales anywhere between 5% to 10% but without any cash burn. So we are still learning the trade and we're still learning how to manage return, how to reduce the marketing cost and -- so I think moving forward, we want to have e-commerce also as a profitable channel. So gradually, we'll build upon that channel.

But are you seeing e-commerce giving you access to new geographies within India itself? Or it's coming from the same profits which you are currently aggressively presenting?

So in e-commerce, about 30% of our sales is from the cities that we're already operational in, so 70% is new geographies and new customers for us. And we have seen -- because we have a CRM that the overlap is not much. So whatever customers that we're getting from e-commerce are new customers for us. That is a positive sign for us.

The next question is from the line of [ Rajesh Jain ] from [indiscernible] Research.

Akash, I have two questions for you. First, would you like to share what will be our EBIDTA level for the balance 9 months? And second, would you like to give guidelines with respect to top line and EBIDTA for the next year?

Okay. So I think, as I said, for the whole year, we are targeting an EBIDTA of INR 25 crores. So the first quarter EBIDTA was negative 7.5. So the rest of the 9 months, it becomes about INR 30 crores, INR 32 crores of EBIDTA. And for next year, we want the per square feet sales of about INR 750 per square feet, and we will have an area of about 1.1 million square feet. So I think if you extrapolate that, it will give you a number of about INR 1,000-something crores with an EBIDTA margin of about 8% to 9%. That is the target for FY '23.

Okay. Good. One more question. Would you let me know like what is your plan for next 3 years with respect to addition of our stores? What is the plan?

Every year, we want to grow at 20%, out of which 15% will come from new store addition, and we are targeting a positive SSG of 5%. So you can say that we will add around 15 to 20 stores every year for the next 3 years.

The next question is from the line of Amit Porwal from Marathon Capital.

Akash, one thing with the presentation and the website also stresses about is the private labels. But I have seen a couple of presentations for last few quarters and all, only 5 private labels have been displayed. So are we working on additions to our private label?

Yes, we have been already applied for trademark actually. So we are just waiting for that approval before we put it in our presentation and the website. So we have registered about, I think, 6 new brands, private labels.

And just for my information, private labels would command a little better margins, right?

No. So because private label is basically any goods that is made in our own brands, but the extra margin would be in the products that are made in our own manufacturing unit.

So are we -- is the private label being manufactured in-house or still it is going out?

So out of the 40% -- 35% to 40% private label that we're selling in our stores, 10% to 12% is from our own manufacturing unit.

Okay. So we plan to increase it further in our in-house, right?

The plan is to take the private label contribution to almost 80%, 90%, all of which our own manufacturing and our own developed design. Own product development would be about 40% to 50%.

Okay. And one last question on the omnichannel sales. Out of -- what would be the first quarter sales in omnichannel?

So we haven't started omnichannel yet. So I think we will start it in Q2. All the deliveries have been taken care of by the warehouse itself right now.

[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to Mr. Akash Agarwal for closing comments.

Thank you, everyone, for joining the call. We hope to have been able to answer your questions. I hope everyone stays safe. For any further information, I request you to get in touch with Marathon Capital, our Investor Relations advisers. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of Marathon Capital, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.