V2 Retail Limited (V2RETAIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the V2 Retail Limited Q4 and FY '25 Conference Call. [Operator Instructions] Please note that this conference is being recorded. Before we begin, a brief disclaimer. The presentation which V2 Retail Limited has uploaded on the stock exchange and the website, including the discussions during this call, contains or may contain certain forward-looking statements concerning V2 Retail Limited business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. I now hand the conference over to Mr. Akash Agarwal, Whole Time Director, V2 Retail. Thank you, and over to you, sir.

Thank you. Good morning, everyone. It's a pleasure to welcome you all to V2 Retail's Quarter 4 and FY '25 Earnings Conference Call. This year has not just been about growth, it's been about transformation. FY '25 has been a defining year for us, a year where our strategy, execution and agility came together to deliver the strongest performance in the company's history. Let me walk you through the highlights and the momentum that we are building on. Some headline numbers that speak for themselves. Revenue crossed an all-time high of INR 1,884.5 crores, growing 62% from last year. Profit after tax surged to INR 72 crores, marking a 159% growth from last year, and it is our highest ever. EBITDA stood at INR 257.8 crores, growing 74% with margins of 13.7%. Same-store sales growth for FY '25 was 29%, even on a high base. Volume growth came in at 43%, reinforcing customer traction. Full price sales stood strong at 89%, up from 87% in FY '24. ROE improved to 23.2%, a clear reflection of our capital efficiency. Some operational highlights. We added 74 stores and closed 2 during the year, reaching 189 stores by 31st of March 2025. As of today, we have already crossed the 200-store mark with 207 stores live. Our stores are profitable from the very first month with breakeven sales at just INR 500 per square feet per month. Sales per square feet for the year rose to INR 1,017 per square feet per month, up from INR 854 last year. Product and brand led differentiation. 85% of our business is private label, and we are doubling down on it. Our own design products contributed about 35% to 40% this year, and we target it to reach around 60% by the summer of 2026 and 80% by 2027. This means better margins, unique fashion, less discounting and customer loyalty. We reduced old inventory, that is more than 1 year old inventory from 18% to just 5%, ensuring freshness and relevance. CapEx per store is INR 2.2 crores, inclusive of inventory. Our inventory is at 90 days and creditors are at 45 days, maintaining a lean working capital cycle. What's next in FY '26, '27? We guide for a revenue growth of 45% to 50%, driven by new stores and a same-store sales growth of 8% to 10%. We guide for an EBITDA margin at pre-IND AS level of 8% to 9%. We are expanding rapidly across high-performing clusters like UP, Bihar, Odisha, Jharkhand and now also entering Punjab, Bengal, Rajasthan and the South. We are not in a race for store count alone, but for profitability, scalability and brand dominance. FY '25 proves that V2 is no longer just a retail company. It's a fast-moving platform for aspirational India. We've built a brand that understands small town India, yet offers fashion with a flare that rivals any urban retailer, and this is just the beginning. With a robust model, consistent store performance, strong internal accruals and an unbeatable value proposition, we are confident that FY '26 will raise the bar even higher. Thank you once again for your time and trust. We are now happy to take your questions.

[Operator Instructions] The first question is from the line of [ Abhishek ] from [ AB Capital ].

Congratulations on a great set of numbers. Every con call I speak and every con call you amaze us with the numbers. Just wanted to ask, can we be PAT positive this year in all quarters?

Yes. That is the target. And I think even this year we were EBITDA positive in all the 4 quarters. But for this coming years, now even with the seasonality, we expect to be PAT positive in all the 4 quarters.

Do we have a PAT margin number in mind that you want to achieve?

So we target a pre-IND AS EBITDA margin of 8% to 9%. So I think which translates to about 4% to 5% of PAT.

Okay. And in a TV interview you had guided that you will open 100 stores this year. So is that still in force?

Yes. So we have already opened 17 stores this quarter. So we are on track to open 100 stores this year.

We don't need to raise any funds for this, mostly from internal accruals, et cetera?

So to open 100 stores, we do not need any funds. Our internal accruals are sufficient. But we are very excited because the performance of our new stores is giving us confidence that we can increase the store count. So we are internally making a detailed cash flow and a business plan for the same. So if we feel that we don't want to compromise on store performance as well as return ratios. So if we increase the store opening guidance, then we might raise some capital.

Okay. Okay. And this year, our SSG was amazing at 29%. But did I hear you correctly? You told 8% to 9% SSG guidance for next year?

Yes. So for the last 2 years, first, we showed a SSSG of 31% in FY '24, then 29% in FY '25. So our base is more than INR 1,000 per square feet per month now. So now we will be very happy with 8% to 10% SSSG also.

Okay. Okay. And do you think we can get operating leverage next year, like this year also?

Yes, definitely because the head office and warehousing cost together is about INR 55 to INR 60 per square feet. Now that would be spread over a larger retail space. So we should get a leverage.

Okay. Okay. And finally, I wanted to ask, you have become CEO. So is this a long-term thing or we are in a lookout for somebody, and this is just a transient thing?

It is a long-term thing. So I have assumed all the responsibilities. But definitely, we are always in the lookout for good people because to grow at 40% to 50% for the next 5 years, we need to build a very strong foundation.

The next question is from the line of Palesh Kaware from Nuvama Wealth.

First of all, congratulations for the good set of results and being appointed as a CEO, Akash. My first question is related to inventory. So it has came down and we -- like you have guided to open 100 stores. So do you expect it to go down further, or it shall remain at same level or there could be rise because of the store addition, which is very aggressive for this year?

So see, what happens with inventory is the capacity of the store remains constant. So when you increase your per square feet sales, the inventory number of days comes down. So if you are able to continue this trend, then, of course, there is still some gap to reduce it further.

Okay. And my next question on the same line again. Even if I take the same revenue per square feet for next year and take into account 100 stores additions, even then the growth comes out at more than 50%. So is that the right assumption from my side? Or am I missing something?

So the complete assumption is based on how many stores are opened in which month. So you must have taken an average. So when we put it in our model where we open a lot more stores in the September, October season, then it gives us this 50% growth number.

Okay. Okay. Got it. And on warehouse side, how much is the warehouse piece right now? And any plans to add further since you will be adding stores at a very aggressive rate?

Yes. So the current warehouse is good to service another 70, 80 stores. We have finalized another zone warehouse in Kolkata. So definitely with the new stores' acceleration, we will finalize more warehouses.

Okay. And what is the CapEx per square feet for warehouse?

So for a 1 lakh square feet warehouse, the CapEx is around INR 20 crores.

Okay. Okay. And last question from my side. Last year, Q1 was, again, very good, and you will be on a high base in I think Eid and all like festive demand would not be there because it was there in Q4. So do you still expect Q1 to be very good? And how are you -- like how are the trends for Q1?

So Q1 has the main wedding season. Of course, the Eid was preponed and it shifted to Q4. So there will be a slight impact. But we have seen very good traction, and we have seen very good performance of the new stores as well. So it gives us very, very good confidence. And hopefully, it continues throughout the year.

So is it in line with the guidance of efficiency that you've given like...

Yes, it's in line with the guidance that we're giving for the future years.

The next question is from the line of [ Onkar ] from Shree Investments.

Congrats for the great results once again. My question was regarding earlier you mentioned that you would be growing at 40% to 50%. I mean, your endeavor is to grow at 40%, 50% for the next 4, 5 years. And again, you mentioned at the beginning of the call that you would be targeting margin expansion in '26 and '27. So coupled with -- coupled both of this, what kind of EBITDA growth you would be targeting? Maybe a margin level can help on 40%, 50% revenue growth.

so because the new stores are slightly below in terms of per square feet sales because it takes about 2 to 3 years for them to mature, so there might not be a huge expansion in EBITDA margin. But like I mentioned before, there will be a slight operating leverage. And if we get a very good SSSG like the last couple of years, then there will be an EBITDA margin expansion. But otherwise, with opening 100 new stores, we will target around pre-IND AS 8% to 9% EBITDA.

Right now, what is the EBITDA pre-IND AS?

So pre-IND AS EBITDA is, one second. It's 8%.

8%. So somewhere you are expecting the similar kind of margins for the next couple of years.

Yes. Expansion would be within a 1% mark because the newer stores, they absorb the extra EBITDA because their per square feet is about 20% to 25% lower than the old stores, old mature stores.

Okay. So do you think that your size is helping us to give you the guidance of, say, 40%, 50% for the next 4, 5 years? Or I mean, obviously the market is itself, the retail category is growing. But I mean, can you expand a bit more on that?

I didn't understand your question, sorry.

I mean you're targeting 40%, 50% growth. So I'm asking whether this is based on the size at which you are, the base at which you are or else it is also because of the market growing and you are a small base in that market?

No. So the total addressable market is huge, but we just made a model where we open at least 100 stores every year and get an 8% to 10% SSSG, and we felt that this is achievable because we opened 74 stores last year. And we have proved that we can grow at that level also. So the scope to grow is much faster than this also. But like I said, if our performance keeps improving like it has in the last 2 years and the new stores keep giving encouraging results, then we might accelerate the store growth, and it might be 50% to 60%.

Okay. So you are targeting 100 stores each year for the next 4, 5 years? Is that correct?

Yes. Yes.

Okay. And just last question. I mean, everything looks so bullish. What can be the downside here?

I think the biggest downside can be poor execution because the addressable market is there. India as a consumption giant, you can just imagine the next 10 years is going to be what happened in China from 2000 to 2010. So in terms of macroeconomic factors, in terms of the sector that we are in, in terms of the total addressable market, nothing is a miss. The only thing that can go wrong is poor execution, and we're not sticking to our strengths and not giving the right product to the consumers.

The next question is from the line of [ Ashish ] from Leo Capital.

Congratulations on a good set of numbers. So I have 2 questions. So my first question is, what is our rental cost on a pre-IND AS basis for the current year and the previous year?

So previous year, it was INR 56 per square feet per month. And current year, it's around INR 52 per square feet per month.

Okay. And for a store greater than 1-year, what sort of sales per square feet are we currently at?

It's more than INR 1,100 per square feet.

More than INR 1,100 per square feet. Okay. And I just wanted a confirmation. I think during your -- in the beginning, you mentioned that the old inventory of -- which is greater than 1 year is around 5%. Is that correct?

Yes. It used to be 18%.

The next question is from the line of Niraj Mansingka from White Pine Investment Management Private Limited.

Just one question on the new stores that you're adding. Can you give some color because they are not a part of SSG. Can you give a color on how they are performing? And so because the reason I'm asking is that your store addition has increased a lot. So I wanted to just know on the color on how the revenue per square feet on a blended basis would come up in, say, a year from now? So a new store color would be very useful on that side.

Sure. So I'll just give you a comparative number, so it will be easier for you to understand. So about 2 years back, when the company per square feet was around INR 650 per month, the new stores did around 40% lower than the old stores. That was the benchmark. But now the stores that we opened in the last 1 year, they are doing 26% lower than our old stores. So the new stores performance have improved a lot. So if my old stores are at INR 1,000, even the new stores are starting at INR 750 to INR 800, which is a very, very encouraging figure. And it takes about 2 to 3 years for a new store to mature because they grow at a faster rate than the mature stores. So in a 3 years' time, they come at par with the stores that are aged more than 1 or 2 years.

Okay. And the second question is on the geographical areas. Are you going to newer markets? And how is the adoption on those sites like in the new states or the new regions that you're going?

Yes. So we entered Punjab. We entered Andhra Pradesh. We also entered Rajasthan, and we have got a good response across these new states. We are collecting more data. We're trying to gauge what kind of assortment sells in that particular market. And the next stores that we'll open in that market will be adjusted accordingly. But wherever we are entering, because of the value proposition that we offer to the customers, we are getting an amazing response because we don't really have much competition in these new areas in the price segment that we operate in. So the traction has been really good.

On the blended of these new states of Punjab, AP and Rajasthan, how would the revenues per square feet right now?

So it's at par with the new stores' revenue per square feet. So around INR 750 to INR 800.

Okay. Got it. And do you see the cost increasing because of the new state because you can't aggregate the cost or divide the cost because we have some further distance. Any comment on that side?

No. So Rajasthan and Punjab is very close to our distribution center. So logistic cost is negligible. And for the South, we are already present in Karnataka. So we can leverage on the existing routes. So there has not been any increase in cost. In fact, we've been able to reduce the cost because the average rental of the newer stores is lesser than the company average.

The next question is from the line of [ Akash Shah ] from [ AJ Wealth ].

So I mean, my first question is, how is the demand trend shaping up in Q1 so far? I mean, given the recent discussions around a possible slowdown, so.

So if you compare from period to period because Eid was preponed and it shifted from Q1 to Q4. So otherwise, if you look period to period, we're getting a double-digit SSSG Q1, and we've seen a very good response. And all the stores also that we've opened in the current quarter, we're getting very good traction.

Okay. And last one, I mean, I want to know actually what is exactly working for V2. I mean we have already grown 40%, I mean, last to last year. Then this year we have grown around 60%. And now you are guiding for another 45%, 50% growth. So I mean, what is exactly driving this performance? Because when I look at other players with a similar kind of model, they are not able to actually match our level of growth. So could you give us more clarity on that?

So I think our name stands for the core values that we believe in. So V2 stands for value and variety. So we feel we give maximum value to the customer. So in a sense, that means that we are the cheapest in that quality benchmark. And the second is variety. So in terms of number of options, we are the leading retailer. So you can benchmark us with any of our competitors. We have almost 2x the number of options offered to the consumers. So these 2 added up with the kind of assortment that we have at the stores. I think all these 3 together becomes a perfect mix to have -- we now hold a leadership position in this price segment, which is an ASP of about INR 300 because our per square feet sales are at least 25% to 30% higher than our nearest competition.

The next question is from the line of Naitik from NV Alpha Fund.

Congratulations on a very good set of numbers. So my first question is, we have seen significant improvement in our working capital overall. So is the reason -- the only reason increase in sales per square feet, that's the only reason? Or have we taken some steps consciously, which has led to reduction in working capital?

So we have taken a lot of steps to actually optimize inventory. And we have given a lot of knowledge -- did a lot of knowledge transfer and training to our vendors. So earlier, our on-time delivery used to be just 40%, and it has now increased to around 70% to 75%. So before we had to carry a 30-day safety inventory in our warehouses so that our shelves wouldn't be empty. Now we've been able to reduce that a further 10 days. So that is why you're seeing an efficient inventory cycle also. And we have focused a lot on different processes in terms of supply chain and picking process, put away process and the picking and put away at the store as well. So all those combined together has led to a much more efficient balance sheet. And this is an ongoing process. So it will continue to happen in the next couple of years as well.

But sir, if I look at your creditors also, creditor days have also significantly increased. So is that because we are being able to better negotiate the terms with them or what?

So credit days have increased because the share of the subsidiary goods. So we have a subsidiary, V2 Smart, which has our manufacturing units. So that contribution used to be about 18%, 19%, and it has reduced to 5%. So there, the credit days was 0. So as the proportion of those goods are decreasing, the credit days are increasing. As per vendors, we haven't increased any credit days. It has remained constant at around 50 days.

Right. Got it. Got it. Sir, my second question is you mentioned your rent cost per square feet, which has actually declined. So I also wanted to understand how is that actually declining?

It just depends on the set of stores that you finalize. And another thing that works very well for us is we don't look for locations right in the center of the market. What we prefer is a larger flow plate, a big frontage, a good parking. So we focus more on the customer experience because we know our brand has enough pull for the customers to come 1 kilometer extra from the market. So those things also work for us, and it really depends on the kind of markets that we are focusing on. It's mostly Tier 2 and Tier 3. So we've been able to get properties at a very, very good price.

Because my question was in context of other players actually sort of saying that rentals are actually increasing and they are not finding suitable places because they are also expanding Tier 2 and 3 cities, which have limited sort of properties where they can open stores.

I can't comment on what other people have been saying, but we have seen something very different because a lot of properties have been converting into commercial properties in these cities, and there's a lot of scope for new commercial buildings. So we always get multiple options in each city before finalizing the store.

Right. And so sir, safe to assume newer stores, we are going to sort of find rentals, which would be at current rate or lower only, it's not going to increase in terms of per square feet?

Yes, correct.

The next question is from the line of Sparsh Mittal from ICICI Bank.

Congratulations for the wonderful results. I have 2 questions. One is a follow-up question to the answer that you just gave, that is the internal procurement has reduced from 19%, 20% to 5%. Any specific reasons for that? That's one. And second, V2 Retail has had a history of corporate debt restructuring when it was known as Vishal Retail. And the reasons for that were the increase in stores. The company increased stores from like 49 to 170 from 2007 to 2009 by an IPO -- with the help of an IPO and borrowings to the tune of about INR 500 crores. And in the current scenario as well, the company is increasing store numbers at an even kind of higher -- at a more aggressive rate. So the question being, I mean, what is the company doing different in comparison to the 2009, '10 scenario wherein we were forced to go ahead for corporate debt restructuring, which kind of concluded till 2017-2018. Only in 2018 annual report was the restructuring story kind of removed from the annual report. So those are the 2 questions.

Sure. I'll answer your first question first. So the contribution of the subsidiary goods have reduced from 18% to 5% because the volumes are increasing. And the capacity of the manufacturing units was fixed. So we opened the manufacturing units just to get transparent costs of making each and every category so that we could negotiate with the vendors better. There were no plans to expand that business or open more units. So as the volumes of the business will increase, that contribution will keep coming down to very insignificant levels. Now answering the second question, the scenario that you're comparing from is totally different. If you look at the financials, if you look at the numbers, you'll understand that because in -- during Vishal, we never were generating so much cash flow. We were never generating EBITDA at a percentage of almost 8%. We did not have an ROE of 23%. Our per square feet sales was less than INR 500 per square feet. So it is not an apple-to-apple comparison. And even last year we opened stores all through internal accruals, and we can open 100 stores this year also with just internal accruals. So I don't think it's the right comparison. And because of the learnings we had from the previous company, now we have cash flows made every week. We make store level EBITDA. So if you look at more than 1-year old stores, we don't have a single bleeding, EBITDA-level breeding store in the company, which I think historically is the first time that has happened. So there are certain checks and processes that we have built where we don't want to compromise on profitability just to chase a growth number, just to open a lot of stores. It's only because we have built a competitive advantage. We are ahead of the competition. We have built a leadership position. And the last 4 years was a period of consolidation where we were strengthening our model, we were trying to make our product offering better. We were working very hard on processes. So now I think it's the time to reap the rewards of it. And when you're getting very encouraging performances and there's a huge acceptability of the products and because wherever we are opening a store, we are getting very good traction. So that means that our model is strong. And that is why it gives us confidence to be able to open 100 stores and grow at the rate that we're talking about.

The next question is from the line of Niraj Mansingka from White Pine Investment Management Private Limited.

I just wanted to know some color, Akash, on you started G2 Smart. And so how much you are able to reduce the cost from the vendors? And what is the proportion of peak revenues from those companies? And how much is it right now? Some small color would be useful.

Again, Niraj, like I said, that contribution is very insignificant now. So there is a cost saving about 6% to 7%, but now the sales contribution from that business is less than 5%. And it is a very capital-intensive business. So it's -- in order to grow and procure for the big scale that we're talking about, the way to go is having vendor partners, having contract manufacturers who can give us at very similar prices. So one thing beneficial out of this that came was now we've been able to negotiate better prices with our vendors by showing them the transparent cost that we are getting in our factory. So I think it has served this purpose. And now we've been able to renegotiate and get much better prices from our vendors itself.

And how much is the peak revenue from V2 Smart earlier?

Peak revenues would be about 8 lakh pieces a month. So that's about INR 150 crores.

INR 150 crores a year?

Yes.

Okay. And you achieved a saving of almost 6%, 7% because of that compared to what it was before it started?

So see, this saving was achieved towards the latter part of the year because it all depends on the efficiency of the manufacturing units. When you're setting it up, you are actually getting higher costs. So that has not yet been translated into numbers.

Right. And what did you do with those machines? Are you still holding them, or you sold them, or?

We are giving them to our vendor partners so that they can -- because we are increasing the business with certain vendor partners by almost 2x or 3x. So they needed machines, so we've been giving it to them.

Okay. And any guidance for the EBITDA margin on the pre-IND AS side for FY '26?

It should be between 8% to 9%.

8% to 9%, OKAY. For the entire FY '26, right?

Yes.

The next question is from the line of Rajesh Vora from Jainmay Venture.

Congrats, Akash and the team on a wonderful set of numbers. It's good to know, Akash, that all new stores are EBITDA positive here. On that line, what is the CapEx per store? And what is the payback period on an average for a new store for your company?

So the CapEx per store is INR 1.1 crores. And if you include the inventory, it's around INR 2.2 crores, that's your investment. And if we get a INR 1,000 per square feet of sale with a gross margin of 28%, we get and the cost structure that we have, which is INR 190 per square feet per month, we get an EBITDA of INR 1 crore 8 lakhs for the whole year. And if you take out the net profit is around INR 60 lakhs to INR 65 lakh for the whole year on an investment of INR 2.3 crores. So you get an ROE of about 23%, 24%. So the payback period is 4 years.

Okay. Got it. And another thing I noticed is that on the fourth quarter of '25, gross profit margins have come down a bit from 28% a year ago and 32% in third quarter. So obviously, third quarter is the best one. But what changes less than INR 100 crores delta change reduction in revenue from third quarter to fourth quarter, the swing in gross profit margin is very huge, which should be more variable cost So could you please explain that?

So because of the end-of-season sales for winter and pre-winter goods. So winter and pre-winter season is only for 3 to 4 months. And if we don't clear out that inventory in January, then we have to carry it for another 9, 10 months. So that is why always the fourth quarter has the lowest margin. And in terms of sale, because it's cyclical, there are no weddings in the fourth quarter. And January and February is the dullest months usually throughout retail for consumption. So that is why you see that dip.

What this end-of-season sale would cost in terms of revenue, roughly about maybe a couple of percentage points? How should we read it?

It's more. So during the end-of-season sale, the gross margin drops by more than 6%, 7%.

Congrats on good set of numbers.

The next question is from the line of Gaurav Jogani from JM Financial.

Akash, congratulations on a great set of numbers. Akash, I just wanted to understand one thing. If we look at the cash flow for FY '25 and our implied cash flow for the year comes to be flat given that there is also a CapEx of around INR 100-odd crores that we have incurred on the store openings. So in this light, how do you expect the cash flow to emerge in FY '26, '27, given that profitability will increase meaningfully. And I think the CapEx would also increase because the store openings is also increasing.

So there are 2 things that we have to take into account. So one is better inventory efficiency, like we have done this year. And there was about INR 60 crores to INR 65 crores invested in our subsidiary. And right now we've already been able to reduce INR 30 crores from that, and we'll be able to further reduce another INR 25 crores to INR 30 crores from that. And third, the debt that we have on our books is currently used for bill discounting feature that we give to all our vendors where they can avail their payments with a certain discount. So if any day or any month, we feel we are not able to fund or we are low on cash, we can just stop the bill discounting feature and use the CC limit for our expansion. So there are 3 levers that we can still use.

Sure. But I mean, on an annualized basis, what kind of CapEx would you be incurring for the next couple of years?

So this year, if we open 100 stores, we'll have to invest about INR 220 crores.

Sure. And that would be including the inventory or just the CapEx...

Including the inventory. CapEx is INR 110 crores and another INR 110 crores to INR 120 crores for inventory.

The next question is from the line of Divyanshu Mahawar from Dalal & Broacha Stock Broking Private Limited.

Congrats on a good set of numbers. I have just a couple of questions. First on the cash flow side. So if you look at the EBITDA to CFO conversion for this year has been on around 90%. So it is because most of the inventory efficiency. So could you give us a highlight that what steps would we have taken on increasing our inventory efficiency from the last year because last year we saw the cash flow from operations being a little subdued because I think it was of the inventory level. So what steps we have taken on the inventory side to get our inventory more efficient or lesser inventory, money blocked in the lesser inventory side.

Yes. So I think I already mentioned this. There are 2 main things that happened. One is the increase in per square feet sale. So the capacity of our stores remains the same. So we keep the same amount of inventory for a higher sale. So that reduced the inventory days by 6, 7 days. The second biggest thing that happened was we reduced the safety stock that we keep in our warehouse. It used to be 30 days. But because we've been able to give prior planned orders and educate our vendors and get more goods on time, we've been able to reduce the safety stock also, and we plan to further reduce it by 6, 7 days going forward.

And what could be efficient in terms of operational efficiency in the stores since we -- what I have understood by visiting your stores is that we have the distribution centers in their stores only and the store guide doesn't come out to be in the distribution center as well. So is it some kind of efficiency in the store operation is also having an impact on inventory?

So you asked me specifically the difference from last year versus this year. But the store distribution center that you're talking about, we've been using for the last 4, 5 years now. So the delta change that has happened, has happened because of the reasons I mentioned to you. But our store level inventory efficiency has always been very high because of the different virtual and physical locations that we have for inventory at the store level.

And one last question, sir. If you look at on the store opening side, so what's our thought process that are we going on the cluster-wise store CapEx or we going towards on the full India pan-India store-wise basis from now onwards because our growth trajectory would be changing from now onwards.

So because we know the fact that we want to be a national level retailer in the next 5 years, we want to test new markets and test new waters also. So about 60%, 70% of the new stores will be in existing clusters and existing markets where we are very strong in. But definitely, 20% to 30% stores will be in newer markets, newer geographies, and it gives us more confidence because wherever -- whichever city that we have entered, whichever new state that we have entered till now, we've got a very good response.

The next question is from the line of [ Abhishek ] from [ AB Capital ].

Just wanted to ask, you had told that ROE will go north of 20%, and that you have achieved. So just wanted to know like how much do you think we can reach by end of '26 next year?

So like I mentioned, because we are growing at 40%, 50% and newer stores don't perform at par with the older stores. So I don't think there will be a huge delta, and we are very happy with 23% to 25% ROE. And if you look at pre-IND AS basis, then the ROE is 28%. So I think even if you maintain it with such a high growth number, then it's a very, very good performance.

Okay. And I think in Q2 con call you had told about a local level e-commerce you will do with your -- wherever your stores are located. So how is that line of business going?

We are not happy with the technology that we were integrating with, and we don't want to start it halfheartedly. So we are still exploring what works best for us and that can be easily integrated with our SAP systems. So only then we'll start. Still, it is not a concrete time line, hopefully this year.

Okay. Okay. I just wanted to confirm, you told 4% to 5% PAT margin, that you're thinking.

Yes.

The next question is from the line of [ Aditya Agarwal ] from [ Fin Avenue ].

So sir, I wanted to just check with the thing like how much in-house design team has expanded in the recent -- from past 3 months? And like how do we face store growth? So basically, do we have internal sole growth team or growth officer, or we are dependent on external agencies for the same?

We have a whole business development team. I think there are 8 to 9 people just in that team for finding out new sites and visiting them, filling in the formats, benchmarking them. So to open 100 stores every year, definitely, we need our team. And of course, we take help from different agents, brokers and agencies that help us with the sites. But all the analysis and everything is done by internal team and then finalized by a very management committee team.

Yes, sir. Sir, earlier, we had like 3 weeks policy for our inventory, which was not getting cleared off. So are we sticking to the same policy, or we are doing some changes over there in the policy level?

No, it is the same policy. We wait for 15 days before identifying slow movers and then putting them in the discount zone. And to answer your first question, there hasn't been a significant increase in the product development team. And we have also mentioned this earlier because we want to take a gradual approach in increasing our product development percentage because we want to make sure that whatever our in-house designs are at the store level, they are giving us at least 15% to 20% higher gross profit per square feet. And we don't want to disrupt the business performance suddenly. So we are taking a cautious approach, and it's giving us good results.

And sir, on the terms of PAT, can we expect like FY '26 to be a blockbuster for us with like INR 150 crores or INR 200-odd crores of final bottom line?

All depends on the execution, sir. Hopefully, it is a good year, and it's looking like it's going to be a good year. But we are sticking to our strengths and trying to implement all the different 15 new projects that we have undertaken to go to the next level. So the next target for us is INR 1,200 per square feet per month. So we hope to reach there in the next 2, 3 years.

The next question is from the line of Rajiv Bharati from Nuvama.

Sir, with regard to -- because ROE or ROCs are basically close to 23%. And we have seen that several players have kind of solved the franchising bit recently. Are you open to, let's say, franchising, especially the CapEx side of your business to expand -- I mean, to release some capital?

To be honest, we haven't studied that growth path yet. But I think we would be open to it in the future. Like I said, if we feel we want to accelerate the number of stores that we want to open and the business is continuing on the momentum and we keep getting amazing SSSG and the newer stores traction, then we would explore that route as well.

Sure. And lastly, on geographical split, so especially on something like Odisha and Jharkhand, how do they stack against, let's say, on the indexation front on the sales per square feet number versus, let's say, rest of the brand?

So Odisha has been a very, very strong market for us. And I think -- I don't have the exact numbers, but it's definitely higher than our national average. And same goes for Jharkhand because it also depends how many -- what percentage of stores are mature stores in that particular state. So for example, we have almost 8 stores in Bhubaneswar. So it's been a good market for us, and that is why we are expanding more in Odisha and Jharkhand also.

The next question is from the line of Naitik from NV Alpha Fund.

So my question is when I look at your balance sheet, your other current assets or other current financial assets have almost doubled from last year. So just wanted to understand what constitutes are sitting here in other current assets.

I would have to check that, but I think you're checking the GAAP numbers. So it's all related to how your rental properties are part of your assets. So because we opened a lot of stores this year, they're added to assets and then you subtract the liability and charge interest cost on that on those rent provisions.

No, sir, I'm talking about other current assets, which has gone from INR 50 crores to INR 109 crores, other current or other financial assets. So I think this is different from...

You're talking about current assets. I would have to check that number. But it's mostly other current assets is security deposits and just advances. I'll have to check on that number.

The next question is from the line of [ Anuj Lanavat ] from -- an individual investor.

Yes, sir. So basically, I wanted to ask about inventory turns. So we have seen a very good growth in same-store SSG of, say, whatever 30%, but the inventory turns has been remained stagnant around 3.3, 3.2. So what is our plan in improving here? And I heard it in the last call that we have been working with the vendors in terms of improving the ERP so that we'll have to keep less inventory. So is that in that direction? And how would you talk about the trajectory of this year?

So yes, current inventory level is around 90 days, sir. And as we are able to improve the vendor ERP integration and the supply chain from the vendor part, I think we'll be able to get it down to around 75 to 80 days. But there's no further scope to reduce inventory because then we might risk on loss of sales because we never want our shelves to be empty. And the added cost of 10 to 15 days inventory is much, much less than the opportunity cost of a lost sale.

Okay. Okay. And my last question was about what was the sales to repeat customer?

So in the mature stores, it's around 70%.

The next question is from the line of [ Kapil Malhotra ], an individual investor.

I just wanted to ask that Q1 will maintain the growth rates forecasted about 45%, 50%. And it being assumed being one of the better quarters, so Q1 and Q3 are supposed to be the better quarter. So PAT margins of about 4% to 5%, can we assume that?

For the full year, sir, the guidance is 40% to 50%. So yes, you should see those numbers in each of the quarters. And similarly, that goes for PAT numbers as well.

The next question is from the line of [ Onkar ] from Shree Investments.

You intend to become a national level player in the next 4, 5 years. So as of now, you haven't entered markets like Maharashtra and all. So what are your plans on that front?

We opened our first store in Maharashtra actually 5 days back in Ichalkaranji, and we got overwhelming response. So hopefully Maharashtra becomes one of our core territories in the next 4, 5 years.

So if my calculation is correct, you would be going towards, say, 600, 700 stores, 700 stores, say, next 4, 5 years? Is that calculation, correct?

Yes, hopefully before that also.

Okay. And your target for, say, a long-term target for sales per square feet, you are right now targeting around INR 1,200, but where -- what level can you reach to if all goes well?

There's no limit. I think we want to keep testing the ceiling for that. I don't think anyone can give you a ceiling to that. I have seen stores that do INR 10,000 per square feet of sale also. So I think it is -- I think it is limited by our own capabilities.

Okay. So for, let's say, if my understanding is correct, for sales per square feet and for margins, there is only upside if we can calculate, right?

Yes.

For revenue, I've already told, but for margins and -- sorry, sales per square feet, there is only upside you are assuming?

So see, again, for guiding, we say 8% to 10% SSSG, but you ask me what is the limit. So those are very -- 2 very different questions. So if you talk about limits, I think there's a scope and potential for doing much, much higher per square feet sale. But like I said, we haven't implemented a lot of things yet that we want to implement. We don't still sell 100% of what we design or make. So there is a huge, huge scope for improvement in growth. But for guidance, when you talk about making a model, making a business plan, it is 8% to 10% SSSG with opening 100 stores at least every year and the new stores doing 25% to 30% less than old stores. So that is how you build the business plan. But when you talk about the ceiling of per square feet sale, I think the first target is INR 1,200, then the next target would be INR 1,500 per square feet per month.

And this 8% to 10% SSG growth you are talking about; this is because last 2 years pace is now high. That's the only reason? Or I mean, is there something other you are penciling in?

No. Of course, like now we've increased the average revenue of a store from INR 65 lakhs to more than INR 1 crore a month. So the percentage, we've almost grown like more than 60%, 70% in 2 years for the same cohort of stores. So because of a higher base, we're taking a smaller number.

And for the next 4, 5 years, if you want to grow at this pace, 40%, 50% you are saying, I mean, would your internal cash flows be enough or like at some point of time you will have to tap the market, or debt would be the strategy?

So that also I mentioned before that to grow at 40%, 50%, we don't need additional capital. But because we've been getting such good response of our new stores, we are working on increasing -- accelerating the store growth. So then we might think about raising capital, but not debt, it will be equity infusion.

Okay. And can you tell me what is the current debt-to-equity ratio? And what is the ROCE return on capital employed?

I don't have the ROCE figure, but debt is around INR 125 crores and equity is around INR 360 crores. So it's 1:3.

Okay. Any ballpark number for ROCE?

No, I won't be able to. ROE is 23.2%. We'll have to check for the ROCE.

Okay. Just a final question is on the interest from the institutional side. Like I mean, we see very less institutional investors from your shareholding pattern. I mean, what's stopping them? I mean from -- it's for them to answer, but just asking you like since you are growing so much and at a profitable rate, I mean, are you meeting some institutional guys? Or like what's your comment on that?

There is regular conversation, and it's a mystery to us also. I think we'll have to post even more stellar results to convince them. And hopefully, we're able to do so.

The next question is from the line of [ Rohit Jain ], an individual investor.

I just want to know one question that do you have any future plan regarding to cater upper category market like. So are you have any plans, any future plan regarding that?

No, sir, we don't have any plans for that. We want to focus on this model. This model has a big enough market potential. So at least not for the next few years.

The next question is from the line of Divyanshu Mahawar from Dalal & Broacha Stock Broking Private Limited.

Sir, so just wanted to understand the thought process. So suppose, for example, if we go to open the next 100 stores in 1 year in next FY '26 -- so if by any chance my 100 stores don't get the sales revenue -- same-store sales growth or you can say that what we wanted to get the revenue from the 100 stores, if we don't get the EBITDA breakeven or EBITDA positive. So what is the thought process that first we will focus on making profitable that 100 store and then we expand it?

Yes, definitely. So what happens is the whole expansion that we're talking about is going to happen in multiple legs. So if we open a next batch of 50 stores and we see that all the new stores are doing less than 50% of our old stores, then of course, we'll revisit our growth plan, and we would not open 100 stores or 50 stores, and we'll try to figure out what went wrong and try to consolidate and correct that before growing because I already mentioned that this time, it's not just about number of stores or revenue growth numbers. This time, a big, big focus is on profitability, on return ratios because profitability is the priority.

Okay. And sir, last one thing just wanted to understand that what -- if you -- just you mentioned in the call that -- our target is to get into 1,500 square feet from 1,200 post that we will reach it to be 1,500 square feet per month. So what gives you the confidence, what gives you the motivation that we can do 1,500, yes, what steps we would be taking to reach that kind of square feet sales, 1,500 square feet per month sales? Any steps you would be taking out that, that could make you a better than the competitors? If you can tell us a broad?

So it is focusing on the same things that we've been focusing on. Again, it's all about product. So working on product even more, having 100% of our own designs, making the quality better, fabric better, fits better, colors better. It's about processes. It's about demand forecasting, doing it better. So I think it's a combination of 100 different factors that makes the secret sauce that has helped us get from 650 to 1,000, and that is how we plan to get from 1,000 to 1,200 and then 1,200 to 1,500. There is no white or black answer or a one-word answer to that. If we knew that, we would have done it already. It's a lot of trial and errors. It's a lot of innovation, and it's a lot of improvement.

The next question is from the line of [ Nitesh Kumar ], an individual investor.

Congratulations on a great set of numbers. And yes, Mr. Agarwal, it would be great if you bring some light on qualified opinion given by auditors for PPE even from the last 3 years, [indiscernible]. Will you please bring some light on it?

So which point are you specifically talking about? Can you mention it? Qualified opinion for PPE from the last 3 years like some machinery or something like that? So the main qualified opinion that has been there for multiple years has been the fixed assets reconciliation. So because we did not have the fixed assets module in our ERP, it has been a challenge because we have so many multiple sites, and there are more than 15,000 different articles for fixed assets. And we did not want to do an accurate reconciliation. So we had hired an external agency who worked on it for more than 1 year, but we were not satisfied with the results. But now we've hired a newer one, and it's almost 80% done. So this year, all the qualified comments would be removed by the year-end.

The next question is from the line of [ Akash Shah ] from [ AJ Wealth ].

No, my question is already being answered.

Ladies and gentlemen, we'll take this as the last question, and I now hand the conference over to Mr. Akash Agarwal for closing comments.

Thank you, everyone, for joining the call. We hope we've been able to answer your queries. For any other further communication, we request you to get in touch with Marathon Capital, our investor relation team. Thank you.

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