V2 Retail Limited (V2RETAIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 and 9 Months FY '22 Earnings Conference Call of V2 Retail Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not a guarantee of future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [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.

Okay, thank you. Hi, good afternoon, everyone. A very warm welcome to our Q2 and H1 FY '22 earnings conference call. I hope you all have stayed safe and healthy during this unusual and challenging times. Along with me, I have Mr. Akash Agarwal, Executive Director; Mr. Gaurav Bansal, our new Finance Head 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 one new store during Q3 FY '22. As on December 31, the company operates 97 stores spread across 15 states and 84 cities with a total retail area of 10.23 lakhs square feet. Same-store sales growth for the Q3 FY '22 stood at negative 3%. Now allow me to give you an all and overview in our operational performance during the quarter. So first, I'll give you a consolidated performance highlights for Q3 FY '22. For the quarter, revenue from operations stood at INR 239 crores, registering a growth of 5% on Y-o-Y basis. Gross margin stood at 33.4% for Q3. These stores were operational on an average for 98% days of the total days for Q3. EBITDA for the quarter stood at INR 41 crores as compared to INR 44 crores in Q3 '21. EBITDA margin stood at 17.1% for Q3 FY '22 as compared to 19.2% in Q3 FY '21. PAT for the quarter stood at INR 12.3 crores as compared to INR 14.9 crores in Q3 FY '21. Now I'll give you performance highlights for 9 months FY '22. Revenue from operations for 9 months stood at INR 471 crores, registering a growth of 35% on Y-o-Y basis. Gross margin stood at 33.3% for 9 months FY '22 as compared to 34.4% for 9 months FY '21. EBITDA for 9 months FY '22 stood at INR 70.4 crores as compared to INR 60.6 crores in 9 months FY '21, registering a growth of 16%. EBITDA margins stood at 15% for 9 months FY '22 as compared to 17.4% for 9 months FY '21. PAT for 9 months stood at INR 2.2 crores negative as compared to INR 2.6 crores negative in 9 months FY '21. The quarter witnessed strong demand in the first season of October and November. However, demand tapered sharply post December 15 until January '22 due to restrictions imposed by various state governments on the wake of third wave of COVID. We are again seeing consumer sentiment returning towards normality since beginning of February '22 as the national infection case load came down. We are hopeful that the recovery shall be sharper on the onset of festival and wedding season in the coming months. All these stores are now fully operational with overall store operation sales at 90% -- 98% for the quarter. Our customers continue to increasingly leverage the commitments of our digital platforms with the online channel. Our expansion plan on store is on track, some delays due to pandemic. We are planning to open additional 5 to 6 stores in Q4 FY '22. Our impact on the private label continues and the growth is encouraging. Health and safety of all our customers and employees are paramount important and all required precautions have been adhered to. We are confident that the business has the expertise and importantly, the resilience to weather this crisis. Given the underlying business fundamentals and the balance sheet strength, the company is well poised to embark on a new wave of growth and create for all stakeholders. I will now leave the floor open for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Priyanka Trivedi from Antique Stock Broking.

My first question is with regards to the gross margin. So the gross margins have contracted on your year-on-year basis. So what has led to this contraction, as we have been increasing our share of in-house production, so what may be the thing for sales decline?

Yes. So if you look at the 9-month number, the gross margin has reduced by about 1%. So because there was COVID in April, May and June, we lost a big proportion of our festive days, where there's the wedding season. So we didn't want to carry over that inventory to FY '23. So we had put an extra discount to liquidate the inventory. So it is because of extra discounting and also because of the slowdown post 15th of December, we had put early discounts on winterwear and prewinter garments as well because we wanted to liquidate inventory and go into the new season with as much less carryforward inventory as possible. So these 2 things contributed to a 1% contraction in the gross margin.

Has there been any impact of input price inflation on our gross margins? Or have you taken any price hike?

So yes, there has been pressure and the raw material prices have constantly been increasing. But we have transferred most of that increase to the customer itself. And that is why we are looking forward to maintaining our gross margin at 32% going forward. So whatever increase in the raw materials and input prices will be transferred to the customer and will lead to higher prices.

Okay. Got it. My second question is on our store additions for the quarter. So we have added 1 store. While if we look at other POs, they have been aggressively adding their stores, especially in this quarter. So what has been the reason for just adding 1 store because we have been very aggressive on our outlook for the stores?

So we did not want to delay our vendor payments, and our cash flow because of COVID in the summer, it didn't allow us to expand as much as we wanted. So we delayed the expansion plan. And now we are back on track, and hopefully, COVID is over. So we are adding about 5 to 6 stores in this current quarter. And going forward next year, we'll add about 25 to 30 stores.

Okay. Got it. And lastly on, if you could just give us a sense on how has the recovery been in urban versus the rural, just lastly on that commentary.

So October and November was very encouraging for us, and we were seeing SSG -- positive SSG from pre-COVID levels. But the second half of December actually when it was very poor, I think it was also because the winter wasn't cold enough in December, and the onset of winter was pretty delayed this year. So I think that is why the quarter from pre-COVID levels was about minus 3%. But it was very encouraging. And I think Omicron has just given a free booster shot to most of the people. So I feel we are very positive going forward. And because there's a lot of pent-up demand as people have not been really going out for the last 2 years. And I feel next year will be one of the best years in the last 2, 3, 4 years.

The next question is from the line of Deepak Poddar, an Individual Investor.

First of all, congratulations on good set of numbers. I have a few questions. First is on the CapEx. So what was the CapEx for first 9 months and full year CapEx look like? And also for FY '23.

Yes. So as we opened only 3 stores this year, so there wasn't much of CapEx requirement because the CapEx requirement per store is about INR 1.1 crores to INR 1.2 crores. So when you talk about FY '23, we are planning to open about 25 new stores. So the CapEx requirement will be anywhere between INR 30 crores to INR 35 crores.

And how are we planning to fund that CapEx?

So we will be generating an EBITDA of about INR 80 crores to INR 90 crores next year. So it can be funded by internal accruals. .

So no debt request, correct?

No debt required. .

Okay. And so since we are planning to open 22, 25 stores next year, my question is how much time does a new store take to break even?

So we have had a very mixed batch in that because a lot of stores took about 1 year to mature and reach its peak. There's a lot of stores took 2 years to reach its peak. But if you talk about operational breakeven, then the store starts breaking even from the first month of operation itself. .

Okay. And what would be the breakeven levels then?

The breakeven level of -- so the operating expense of a store is anywhere between INR 120 to INR 130 per square feet. So the breakeven level is about INR 400 per square feet. I'm talking about breaking even at the store level without any head office cost. And if you add the HO cost then the breakeven level increases to about INR 500 per square feet.

Okay. And follow-on question on the expansion. Which geographies, do we -- are we planning to expand?

So we have already signed most of the agreement and they are already in -- they are mostly in the clusters that they are already operating in because we want to take the benefit in terms of transportation, marketing. So we are all -- we are opening new stores and finalizing new stores in regions where we feel that we have a strong brand presence in. And historically, where our older stores have done well. .

Okay. And on the e-commerce expansion, what was the e-commerce sales for last -- first 9 months? And what would be your guidance for FY '22 full year and '23?

Yes. So the e-commerce sales was INR 21 crores for the 9 months. It was about 4% of our total sales. And for next year, we are targeting our sales of about INR 50 crores from e-commerce. So right now, what we are trying to do is start omnichannel. So we are investing in technology where we -- that will -- the technology that will enable us to deliver from stores. So that testing is going on. So I think that will further reduce the logistic cost for us. And so going forward, the target is to maintain 4% to 5% of sales -- a good sales mix from the online channel.

So 4 to 5, as you mentioned, INR 50 crores. Traditionally, this e-commerce business requires cash. So what is the competitive edge we have? And have we burned cash until 9 months?

So to -- on the sale of INR 21 crores, you can say the cash burn was only INR 50 lakhs. But most of our e-commerce cost is variable cost, and that most of it goes into logistics and marketing. So that is why we don't want to burn a lot of cash. That is why we are gradually understanding this new channel because it's a new environment for us. So we are trying to understand how to increase the marketing returns, ROS and how to reduce RTO, how to reduce customer return and how to optimize inventory, how to optimize logistics, how to get faster delivery for the customers. So we are working on all those things and investing in AI technology and tying up with third parties to understand the data better. So I think there won't be any significant cash burn even to achieve that INR 50 crores because as I said, most of it is variable. So the only investment will go into technology. So that would be about INR 1 crores to 2 crores from e-commerce.

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

Good to speak with you again. So first question is what is your guidance for fiscal year '23 assuming it's a normal year without any COVID-related disruption?

Yes. So we plan to open about 2 lakh square feet new area in FY '23. So from existing stores, we have about 1.1 million square feet already. So we close next year at around 1.3 million square feet, and we are targeting a post-COVID sale of about INR 725 per square feet with a gross margin of 32%. And the expenses that we are forecasting is about INR 170 per square feet. So if you calculate it, it comes to around INR 1,050 crores of turnover, base turnover with an EBITDA of about INR 85 crores. So that is our target for next year.

Okay. And my second question is in terms of debt. What is the current position? And what will be utilized by the end of this year?

So currently, the debt is around, I think, INR 47 crores, INR 48 crores. And I think going forward, by the end of next year, it will reduce to about INR 25 crores to INR 30 crores.

By the end of this year?

By the end of next year.

Next year. Okay. Okay. And then in terms of inventory. So are we totally current on our inventory? Or is there still some old inventory that needs to be the markdown or discounted and sold?

So we've already liquidated most of the inventory. That is why you're seeing a lower gross margin, and we've taken some extra provisions because of COVID. So all those provisions have already been taken. And I don't think any extra write-offs or provisions need to be taken now.

Okay, okay. And in terms of the competitive intensity, if you can give some color about what's happening to some of the other regional players or smaller players in your markets that will be really helpful.

Yes. So there is definitely increased competition from the national players like Reliance and Max and Tata, they are expanding aggressively. But there have been less competitive intensity from the regional players. But like I said, I think the consumption is -- will keep increasing and the rural middle class will keep expanding. So I think there will be space for at least 4, 5 very good, strong players. So I think it's all about who gets it right in the next few years.

So when you compare your SSG from Q3, I don't know if you have done this, but how does it compare to, let's say, the website guys -- I'm sorry, I'm forgetting the name of the competitive brand. And with respect to V-Mart.

I wouldn't want to comment on any other company's numbers. But our SSG, I think, it's at par with the industry average. And I think it's very encouraging that it's -- the SSG was minus 3% from pre-COVID levels. And that too, it was because of December. So I think we can easily get a positive single-digit SSG from pre-COVID levels in FY '23.

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

My question is on extension of the point that you made while answering the earlier question. So see, it's always we say that there's a long demand in market and [Indiscernible] will expand the market or demand in general, then now the influx of competition has been used in terms of we were battling with all the regional competitors for a while. And now suddenly, we have all the national players, as you rightly said, they are very aggressive and they are getting into even 3 lakh or sub 3 lakh population towns as well. So 2 questions here. First, what is the value proposition do you bring as a product or as an experience to the table versus ours? And what is our right to win that the consumer still continues to prefer us over the national brands, which are lending so much comfort on brand and retail experience.

Yes. So to answer your first question, the national players that you're talking about, for example, Reliance Trend, their ASP is above 500. And even if you talk about Max, their ASP is about 450. So we feel that with an ASP of about 290, we cater to a different class of customers. And there's a very slight overlap between Reliance Trend customer or V2 customers. So I feel, like I said, if we make our niche and if you are able to target that class of customer, then there is space for [Indiscernible] in the value proposition, because still there's a huge vacuum in terms of value retailing in India and still the organized retailing contribution is negligible. And most of it is mom-and-pop stores and unorganized retail. So that share will keep decreasing and people will start coming to -- like organized players will start getting those -- that chunk of the pie. So I feel that we are strong enough and if we focus on assortment and product development. It's all about the product offering by the end of it. So I feel like the product and the pricing will be our biggest USP differentiating ourselves from everyone.

And so you spoke about Max and Reliance. But if we see Zudio, Zudio is almost competing at almost similar price point that we offer, right?

Yes. So Zudio's store size is only 5,000 to 6,000 square feet. Our average store size is 12,000 square feet. So with Zudio, I can definitely provide double the number of options to my customer. So if I'm able to provide more number of options at a better pricing or better product assortment then like I feel like we can do much better numbers.

The next question is from the line of Ankit Babel from Subhkam.

A few questions from my side. First of all, what was the figure of the operating days in Q3? I missed that number.

98%.

98%. Okay. And what was the share of own manufacturing in Q3? And what are your plans to take this to the upcoming festive or the wedding season in Q1?

So in Q3, the contribution was about 15%, and the plan is to take it to about 35% in FY '23.

35% in FY '23, okay. And what kind of impact can it have on your gross margins?

So it is definitely giving us benefit in terms of costing. But going forward, like I said, we want to target a gross margin of 32% consolidated. And because of higher input prices, we might pass half the effect of the customer and absorb half. So we'll set off with the savings that we are getting from the factory because we want to focus more on being competitive, having that competitive advantage rather than having a higher gross margin. So getting a higher gross margin in order to focus, getting a higher per square feet sales and turning over the stock more time. That is the target.

Okay. And what is the -- what was the inventory level at the end of Q3 at consolidated level? And what was it last year corresponding period?

For Q3, it's about 270 consolidated. And for V2 Retail, it's about INR 248 crores. Last year numbers, I will have to check. But we have been able to reduce inventory from the last quarter. So I think we've reduced it by INR 40-odd crores. And going forward, we want to target our inventory days of about 90 days. So if we have a sale of INR 725 per square feet, it translates to about INR 2,100 per square feet of stock.

Okay. So one second. So you're targeting that on INR 1,000 crore inventory -- sorry, on INR 1,000 crore revenue at 90 days, it comes to around INR 250 crores of inventory. So you believe that you do our revenue of INR 1,000 crores with the same absolute amount of inventory which you currently have?

Yes. That is why for the additional area also, we don't need additional working capital for the inventory. We're going to rationalize this existing inventory level and operate an additional 2 lakh square feet.

So can you give us some idea how you are going to achieve this? What efforts you are taking? Or what will lead to such kind of reduction in number of days and keeping the inventory at the same level with higher revenue?

One of the things that we have done is, we've reduced the density at a few of our slow-moving stores. So we have rationalized the display inventory that was there at all our stores. So that has reduced from about INR 800 per square to about INR 670 per square feet. So that is the first thing that we have done. And second, what we are doing is, we have increased the frequency of deliveries to our stores. So the replenishment cycle has changed. So that has enabled us to maintain lesser number of days at the store. So these are the 2 bigger changes that we have done. So I think we've already seen the result, and we reduced the inventory in Q3 and further going down -- further down the line, we'll be able to achieve INR 2,100 per square feet of inventory.

So reducing the density, can it have an impact on your PSF?

Till now, we haven't had seen a negative impact because what it essentially does is, it increases the freshness index of the store. Because whenever a new customer comes in, she sees more fresh stock. So we saw that we did not have any negative impact on sales.

The next question is from the line of Sagar Parekh from Deep Financial Consultants.

Actually, my question was just going by Ankit's question on the gross margins and our scale-up of our own production, the business model that we are trying to achieve. So just curious to know that if you're expecting your sales per square feet to go up significantly once you have your own production, then why would you just expect about INR 700 to INR 725 sales per square feet because that was, I believe, the number which we have done, I think, pre-COVID also, right? So either the sales per square feet have to significantly move up or your gross margins have to significantly move up? Because if you do your own model and your sales per square feet does not go up, then it doesn't make sense or your gross margins have to go up. So either of the 2 has to go up.

Yes, Sagar that's very rightly said. And like I said, the production is a very gradual business to actually get the fruits of. So product development, we started about 1.5 to 2 years back. But there was a lot of learnings and there were a lot of lessons learned. And when we give forecast to investors, we always give a conservative plan. Of course, we have a very aggressive internal plan as well where if our production does make it is efficient and does at par as what we actually foresaw when we start the production, then we would easily achieve INR 800 per square feet. But right now, the target is INR 725 per square feet with a gross margin of 32% to 33%, and the extra benefit that we are getting from production. Like I said, because we want to kill the competition, because we want to get more market share, because we want to gain that competitive edge, we want to pass on that benefit to the consumer because if the consumer feels he is getting the same product at B2 at a cheaper price, because we have been able to get a cheaper costing on it because of own manufacturing, then I want to get that customer into my store. So I think it's all about gaining market share for the next 2, 3, 4 years, getting a good foothold in the market rather than getting a higher gross margin. Once we feel that our brand is established and people know -- people connect with our private labels, then would be the time -- right time to actually make it a cash cow and increase the gross margins.

I get that. But still, I mean, in terms of -- I think the difference between our own production and third-party purchase was about, I think, 8% to 10%. So even if you take like 4% to 5% absorption or 4% to 5% price pass-through to the customers and you take the benefit of the half of it. Still, I think we used to do 32%, 33% gross margins in the past. So -- and we used to do the same similar INR 700, INR 725 sales per square feet. So we are coming back to the same kind of numbers that we spoke about, I think, 2 years back. So it's just not adding up, so.

You can say that because of the competition intensity, earlier our EBITDA target used to be 10%, 11%, 12%. Now that target has gone down to about 8%. So I think that should answer your question. Because right now, a lot of new players are also coming in the market, the market environment is not the same as before. So right now, the conservative target is to -- targeting EBITDA of about 8%. And of course, like I said, the product that we are manufacturing, if it's implemented well, then it can easily increase the EBITDA from 8% to 10%, 11%. But we don't want to give those kind of numbers to investors until we feel ourselves that we -- the product development and the manufacturing new products are proving themselves and we actually foresee it. So I think it's too early to make that call. So we need to give manufacturing at least 1 more year to actually see what kind of result is getting us.

And then going forward, where do you see the own manufacturing business settling down at 50% to 55%? Or in 2 to 3 years, it can directly go to about 100%? Because I believe, I think in the last call or the call before that, you had mentioned that this is just like a setting an example to other vendors to set up their own shop and do it at something like that you had mentioned, if I remember it correctly.

So if we increase the turnover, the manufacturing percentage will be going down because we don't plan to open more manufacturing units. We'll have contract manufacturing, and we'll have manufacturing partners that will only exclusively work with us, you can call them manufacturing franchisees. So the idea behind having our own manufacturing unit was to certain efficiency when negotiating with those kind of vendors, so that we can show them that see we are able to achieve this costing. So that is the contract we want to work with you on. So that was the whole idea behind it. The manufacturing percentage won't go up going forward. Only this year, it will go up because, obviously, the efficiency was low last year, and we plan to increase that efficiency. So increasing that efficiency will increase the production. But going forward, the target is to have 100% private label selling in our stores, but the production contribution will keep coming down every year.

Sure. So when do you think this 100% private label contribution would be reached? Would it be possible in FY '24? Or it will like beyond that?

I think it should take another 3 to 4 years. We have reached about 50%. And gradually, I think for FY '23, the target would be about 60% to 70%. But there are a lot of categories that we have still not had private labels developed yet. So I think in the next 3 to 4 years, we can be above 90% private label selling.

The next question is from the line of Pankaj Pant, an individual investor.

Just want to bring incident to you. Am I audible?

Yes, sir, I can hear you.

Okay. Sometime back, we had -- you opened a store in Dehradun, and I was very keen to visit it. I checked with Google Map, you were not to be traced. I checked with Facebook, it said, yes, you have opened one in Dehradun, but I had no intimation -- no address, no phone number, nothing. I send a query also, nobody responded. I tried calling Haridwar, Udupi, but those numbers were not working. What I'm trying to say is, the presence was not clear that you are there. Eventually, I visited, after a couple of weeks, I was able to get the address. It's a nice place, quite big by the Dehradun standard. And V-Mart is already here with 4, 5 showrooms, probably maybe more because I can count 4 as I speak to you. So I understand that you are trying to fight V-Mart is one of the competitors and you have made a presence in Dehradun, but the visibility is not there. And considering social media is very competitive, so that presence should be marked. And I think that is the cheapest mode of promotion. So I just wanted to bring it to your notice.

Thank you, sir. The point is well taken. So we do have our Google business account, and we do tag all our stores on the Google Map. So I definitely take it up with my team and see where there was a lapse and correct it as soon as possible.

Just wanted to bring it to your notice because I don't talk about other stores in other cities. But in the Dehradun, I was not able to find it for a couple of weeks. And considering I think it is a good market with competitors, there 4, 5 store or maybe more. So probably, I think it's the cheapest mode of publicity. Your sales team or someone can just be...

Because we do a lot of digital marketing, hyper locally in a radius of about 15 kilometers from our stores. So to enable that, we do have to put the location of our stores on Google and Facebook. But I'll definitely check why you couldn't find the store and I'll correct it as soon as possible.

Yes, I felt because the new kind of projects, which keep coming out, like the reason you gave just now the -- you have disposed of the inventory and you plan to have new inventory for the wedding season. So probably the sales team or the marketing team, they can flash the new design into Facebook page and other mediums. And probably, they may translate into sales, and it won't cost much. Yes, that will be all.

The next question is from the line of Bhavin, an individual investor.

Akash, it's kind of a repetitive question, but much more focused on Q3 given the fact that the trend always suggests that Q3 happens to be a best quarter, right? So just wanted to know what led to subdued margin profile for Q3 because surprising given the fact that you've locked in terms of revenue, there has been a growth, but margins have taken a hit, especially in the best quarter, which has been a trend all throughout.

Yes. So like I already said, because of the lockdown for 3 months during the summer, we had a lot of pile-up of festive wear, which we knew that will not sell at full price in the next wedding season. So we took a decision to liquidate it because we wanted to enter FY '23 wedding season with as much fresh inventory as we could. So it was a conscious call and we knew it would lead to lower margins. So one reason was that. And the second was because the average temperatures being very high in the region that we operate in during December, we saw that the footfall and everything was very effective. And we saw huge degrowth towards the second half of December. So we decided to put early discounting on pre-winter and winter goods because again like, because it will be very hard to sell that goods in the next year pre-winter, winter. So I think these 2 are the biggest reasons that it came down. But if you look at the 9-month number, it's just a gross margin reduction of 1%, right?

Does it affect when I consolidate and then I probably calculate the yearly numbers put together, will it affect the yearly margin profile if someone needs to project it?

No. I think going forward, like I said, the margins will be maintained by at least 32%. So there will not be any anomaly except hoping that it's COVID free next year. So I think going forward, minimum gross margins will be maintained -- yearly gross margin of 32%.

And if I consider Q4 performance, I mean obviously it has been 1 month or 1.5 months. Has there been any impact for the wave in this particular quarter, especially?

Yes. So most of our stores are in Bihar and Bihar was the most affected in terms of restrictions and lockdowns. So most of our stores were affected in January. But now thank you for -- thank you to the government for realizing that lockdown and restrictions will not be answer. And with the cases coming down, most of the restrictions are being lifted now. And February, we are seeing the customer coming back to the stores. And I think it'll come back to pre-COVID levels once the festive season kicks in. So for FY '23, we are looking at a positive single-digit SSG from 2019 levels, pre-COVID level.

In terms of the Q4, especially how do you see the impact majorly in terms of -- if I need to put a number to it?

So I think in Q4 last year, we had a loss of INR 10 crores. So I think the numbers should be better than last year.

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

We have seen a lot of people having bigger to...

Sorry, I'm not able to understand.

Yes. Is it clear?

Yes, better.

Yes. We have seen a lot of people having bigger stores from what traditionally we had around 10,000 square foot store. And we are seeing people now expanding to 12,000, 15,000 kind of stores to get better revenue. So what is your thought on that in our store side?

So I think the store size has to do -- has a lot to do with what location it's located in. And what kind of a customer density that area has. So one of my stores at 30,000 square feet, it's still doing much better than the national average in terms of post-COVID sales. So I don't think store size determines the performance of the store. It has a lot of other external factors that needs to be defined in terms of store sizes. But one benefit of having a standard store size is when you're doing assortment planning, so it really helps in getting the purchase plan for all the articles. But otherwise, the location, the kind of customer that it caters to, the population density and the frontage, those kind of things will determine what size of store should be.

Okay. And on the branding side, what will be our goal for the next 2, 3 years? Are you increasingly trying to spend on the brand because competition is hopping up. So are you trying to -- is it viable to spend on the branding and create some brand for ourself?

We feel the product is the biggest brand ambassador for us. And that is what we are investing most on because if you talk about Uniqlo, if you talk about Primark, it's the product that side, it's [indiscernible] we talk about data. We don't move away marketing. So I feel we want to strengthen our product first. And that will give us the biggest advantage more than any marketing or branding campaign to get the customers into the store and just see the assortment that we have.

And post COVID, how are we seeing on the rental side? Are they [indiscernible] or they are back to pre-COVID?

All the consumptions that we got because of COVID, I think they're over and the rentals are back to pre-COVID level. So I think our rentals are about INR 44 per square feet and going forward, it's going to stay at the same level.

And for the new stores, which we are opening like 35 stores in 3 years.

[indiscernible]

And Anything on the cost structure? We can see still we have some gap to do or anything which we can help us for long run to improve our margins?

I think we are -- as industry banks in terms of per square feet cost because even in this quarter, the per square feet cost was about INR 168 per square feet. So I don't think there's a margin there to further reduce costs without having a negative impact on sales. So I think even with this cost structure, we can easily get the EBITDA target that we are looking forward.

The next question is from the line of Ankit Babel from Subhkam.

Just a follow-up. In case if we don't achieve our desired level of PSF of INR 725. Are there any levers to maintain your EBITDA margins? If yes, what are those?

No. Like I said, the cost is already consolidated and already saturated in terms of the low margin to further reduce costs. And I don't think that if we are not able to achieve the sales per square feet of 725, we'll have to take decision quarter-to-quarter. So if you see in the first 2 quarters, we're not able to achieve that sales number, then maybe we'll take a decision to pass on net of the benefit to the customer and increase the gross margin 1% or 2%, but like I said, right now, the plan is to get a gross margin of 32% and a PSF of 725. But like we always do a monthly review where we see the budgeted numbers versus actual numbers, and then the decision will be taken and implement it.

But any such move of retaining the profitability will make you more uncompetitive, right? Because if you pass it -- I mean if you pass it on -- pass on the benefit you become more competitive, and if you retain it, you become less.

I wouldn't say we become less competitive, but we come at par. Like we see, if we increase the price and don't pass the benefit to the customer, then we'll come at -- the price comes at par with our competitors. So we don't gain any competitive advantage, but we don't lose any as well. So I think that will be a scenario where we feel that these goods are not giving us an extra per square feet sales -- so we can increase the gross margin. But that has a vertical scenario and will be done when we review what kind of performance we do in Q1 FY '23.

Okay. And again, I missed that number of cost per square feet. What is it, 160 or 170?

It was 168 in this quarter. But going forward it may be INR 170.

INR 170, we should model for FY '23, right?

Yes.

Okay. Okay. And what is the share of private labels now in your portfolio? And where do you see it going forward?

It's about 45% right now. Because of COVID, we didn't plan a lot of winter wear, so that's why we couldn't increase the pivotable margin contribution. But going forward, I see it at about 65% to 70% for FY '23.

For the [indiscernible].

About 90%.

3 to 4 years, 90% Okay. Okay. Okay. And any further investments required in your own manufacturing?

No. The only CapEx requirements is in technology, but that's not for manufacturing. I'm just talking about the company. So with [Indiscernible] for the new stores that we want to open next year will be about, INR 2 crores to INR 3 crores will be in the supply chain warehouse for automation and about INR 5 crores in the technology.

So your current manufacturing capacities can take care of what part of revenue?

About 30% to 35% for FY '23 numbers.

Okay. So beyond that expansion would be required, right?

Like I said, we don't want to expand more into more manufacturing units. Beyond that, it will all be done by the job workers, contact manufacturer. So we have a lot of units that want to work with us. The only problem was the cost thing. But now we can show them the actual costs that we're getting in our factory, and we will give them a return of 12% and they are willing to work with you. So it's all about efficiency. So even until now, we have only achieved an efficiency of 60% of our manufacturing. The target is 60%, 70%. That will further reduce the cost by 3%.

What do you mean by efficiency? Is it the capacity utilization you're seeing or what?

No, the efficiency is basically in manufacturing, there's a standard minute that every garment takes to make. For example, a T-shirt takes about 6 minutes to make. So if your factory is making it in 12 minutes, then your efficiency is 50%. So like factories in Bangladesh, they achieve almost 75% to 80% efficiency. So it's basically the minutes that you are achieving for making that product versus the ideal number of minutes you should take.

Okay, okay. And lastly, on your creditor days, how are they shaping up? And what are the targets there? Creditor days, payables.

So average credit days for us is about 60 days. And going forward, it's going to stay the same.

60 days. So a 90-day inventory and a 60-day creditors?

Yes, 70-day working average prices.

And this is on a consolidated basis, including the inventory which you keep in your -- for your own manufacturing?

So the inventory target of 90 days is for retail only, standalone. So if you add that, I think it will increase to about 95 bps.

Okay. Because earlier I remember, because of your own manufacturing, your creditor days used to come down because you are no longer getting credit on the own manufacturing. So considering that, what would be your net working capital cycle?

So like I said, the working capital has already been employed in V2 Smart in the subsidiary. So there will not be any additional requirement. So I wasn't including that working capital when we spoke about the 30-day working capital cycle.

No, but you still get the 60 days of creditors -- credit days in spite of increasing share from manufacturing?

A lot of vendors are at 90 days. So the average comes out to about 50 to 60 days, even if you include the cash payment done to V2 Smart.

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

Congratulations for a good set of numbers. My first question is related to rent cost. Did you pay full rent within this third wave lockdown? Or is there any reduction? And second question is related to the sales mix. Can you explain like what are the shares of ladies, men, kids and other general merchandise?

Yes. So first talking about rent, like because the 98% of the stores were operational during this period, so we did not have any rent concessions in Q3. And the rent concession was only during the lockdown, which happened in April, May and June. And about the sales mix, the men category contributes by 43% for us, and ladies and kids contributes 25% each, and general merchandise contributes 7%.

The next question is from the line of Pulkit Dharmavat from [Indiscernible] Advisory.

Yes. So the question that I would ask is what is the average selling price and average bill value?

Are you talking about 9 months or are you talking about the third quarter?

The third quarter and 9 months as well.

Okay. So for the third quarter, the average selling price was INR 341 and the average bill value was INR 870. And for the 9 months, our ASP was INR 296 and the average bill value was INR 800. .

And another question that I would like to ask is what is the regional mix in the total sales?

The regional mix, East contribute 54% of our sales, North contribute 30% of our sales and South contribute 16% of our sales.

The next question is from the line of Deepak Poddar, an Individual Investor.

You mentioned that inventory level is 90 days and creditor is 60 days. Is this for Q3 FY '22? Or this is what you want to achieve going forward?

So this is what we want to achieve. Right now, I think the paid stock is more than what we want in our books. But I was talking about the targeted numbers.

Okay. So what is the current inventory number? Absolute number.

INR 248 crores. .

And how much of that would be winter wear or obviously taking -- going back to your one of the answers that most of the areas where you are located where in the lockdown, and that coincides with the winter season. So is there any inventory currently now, which we are carrying on from the winter part of it?

It's insignificant. I think winter wear inventory -- leftover inventory is less than last year's because like I said, we put early discounts this year, and that had a negative impact on our margins, but we were able to liquidate most of the winter wear and pre-winter inventories. .

Okay. And so you mentioned 240. What is the thought process or what are the steps which we are taking to reduce those inventory levels, overall inventory level?

As I had said, we want to maintain these levels, but we'll be able to operate 2 lakh additional square feet area with the same inventory levels. So that is the target. So we are opening 5 to 6 stores in this quarter itself, and then we'll open in about 25 stores next year. So we'll be leveraging the same inventory. .

Okay. Any resale provision -- inventory provision, which we would have taken this quarter, like we were taking in earlier lockdown?

Yes, we took an extra provision this quarter also. Like, because there was another lockdown in the summer, and for old aging inventory, we took an extra provision, and I think no further provision would be required and everything has already been accounted for.

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

Thank you, everyone, for joining on the call. We hope we've been able to answer your queries. Stay safe. For any further information, we request you to get in touch with Marathon Capital, our Investor Relations adviser. Thank you, and have a nice day.

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