V2 Retail Limited (V2RETAIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to V2 Retail Limited Q1 FY '27 Conference Call. [Operator Instructions] Before we begin, a brief disclaimer. The presentation which V2 Retail Limited has uploaded on the stock exchange and their website, including the discussion during this call contain 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. [Operator Instructions] I now hand the conference over to Mr. Akash Agarwal, Director and CEO, V2 Retail. Thank you, and over to you, sir.

Good afternoon, everyone, and a very warm welcome to V2 Retail Limited's Quarter 1 FY '27 Earnings Conference Call. We trust you've had the opportunity to review our financial results. The earnings presentation and press release are available on the stock exchanges and on the company's website. As we begin FY '27, we do so with strong momentum and a clear sense of purpose. The company is operating from a position of strength, supported by continued innovation, agile execution and the deep trust we have built with millions of customers across the country. We delivered an amazing 58% year-on-year revenue growth in the first quarter while maintaining healthy returns. This performance reflects the strength of our business model, disciplined execution and the resilience of customer demand in India's value fashion segment. India's retail landscape continues to undergo a structural transformation, creating significant opportunities for organized value fashion retailers. Consumption is expanding beyond the metros, organized retail is gaining market share and consumers in smaller cities are becoming increasingly connected, aware and willing to spend on better quality products. We believe India's value fashion market still has significant headroom for organized retail penetration. Our focus remains on continuously improving our product offering, maintaining a compelling price value proposition, opening stores in the right markets and building a scalable business without compromising on operational fundamentals. Alongside our strong top line performance, we continue to make strategic investments that strengthen our ability to scale efficiently within India's value fashion segment. Our focus on analytics-led merchandising, supply chain responsiveness, technology and operational discipline is helping us improve productivity, strengthen operating leverage and capture growth at scale. Customer traction across categories remains healthy, demonstrating the continued relevance of our price value proposition and product refresh strategy. A consistent flow of trend-relevant assortments, supported by strong quality standards and competitive pricing has helped us drive growth across our store network. This validates our approach of combining affordability with fashion relevance and enables us to remain a preferred destination for value-conscious consumers. Going forward, we will continue to invest in technology, expand our store footprint, strengthen customer engagement and improve our operating capabilities further. Together with disciplined execution, these initiatives give us immense confidence in sustaining our growth momentum through FY '27 and beyond. During the quarter, we continue to expand our store network in a disciplined manner. We added 56 stores on a net basis during the first quarter, taking our store count to 381 as of June 30, 2026. Subsequently, we crossed the milestone of 400 stores nationwide. Every new store is evaluated carefully with a focus on catchment potential, store economics and the ability to generate sustainable returns. Our approach to expansion remains consistent: grow the network, protect store-level economics, manage working capital prudently and keep return metrics at the center of our decision-making. Now moving on to some key updates. As of June 30, 2026, the company operated 381 stores, covering approximately 40.7 lakh square feet of retail area. During the first quarter, we opened 57 stores and closed 1 store. The SSSG for the first quarter stood at approximately 7.5%. We delivered robust volume growth of 56% during the quarter. Full price sales contributed approximately 90% of sales in the first quarter, reflecting healthy demand and disciplined inventory management. Lastly, due to geopolitical tension, we have increased our safety stock in the warehouse for seamless availability of stock, which has resulted in higher inventory levels. Once the situation normalizes, we will reduce our safety stock. We are looking to maintain inventory at around 100 days and creditors at around 45 to 50 days. Now moving on to some consolidated performance highlights. Revenue grew 58% year-on-year to INR 997 crores. Gross margin stood at 28.6% compared with 29.5% in the first quarter. EBITDA stood at INR 139.5 crores compared to INR 87.2 crores, representing a 60% year-on-year growth. EBITDA margin improved to 14% compared with 13.8% in the corresponding quarter last year. Profit after tax stood at INR 41.9 crores compared with INR 24.7 crores, representing a 70% year-on-year growth. Overall, the quarter reflects healthy operational leverage, strong revenue growth and continued improvement in profitability. Now moving on to the pre-Ind AS performance. Revenue stood at INR 997 crores, representing a 58% year-on-year increase. Gross margin was 28.6% compared with 29.4% in the corresponding period last year. EBITDA stood at INR 79 crores, representing a 51% year-on-year growth as EBITDA margin stood at approximately 8%. The PAT stood at INR 50 crores, representing a 64% year-on-year growth. The underlying business continues to strengthen, supported by healthy customer demand, network expansion, improving operational capabilities and disciplined execution. As we look ahead, our priorities remain firmly focused on profitable growth, capital efficiency and disciplined execution. We remain committed to expanding our store network in a calibrated manner, improving merchandise productivity, strengthening our supply chain, enhancing customer engagement and leveraging technology and analytics across the business. We believe the long-term opportunity in India's value fashion segment remains significant. With a growing organized retail market, increasing consumption in smaller cities and rising customer aspirations, we are well positioned to participate in the structural growth opportunity. Our objective is not simply to build a larger company, but to build a stronger, more efficient and more sustainable business that consistently creates value for our customers and all stakeholders. The foundation is stronger than ever, and we remain confident about the opportunities ahead. With this, I would like to open the floor for questions.

[Operator Instructions] The first question is from the line of Priyanshu Jain from Growth X Infinity.

Congratulations on a good set of results. I have a few questions. First will be on the realization side. So, because of the recent geopolitical tensions, we have taken some price hikes, right? So going forward, do we have any chance because we are, like, play, kind of, a volume game mostly. So do you think that we, like, going forward, increase our product prices going forward?

Yes. So, we are seeing some rise in raw material prices. And I think we will see that come into effect around the third quarter because most of the orders till the end of second quarter were already placed and the yarns and the fabric pipeline was already in place. So I think we'll start seeing that impact from the third quarter onwards, and it will be an increase of about, I would say, 4% to 5% increase in the overall garment cost, which we'll have to pass on to the consumer.

Do we have any kind of a data like -- because in the past few years, like the commodity prices are at a stable level. But like do we have any kind of a data like when there is a price increase, what kind of impact we face or like the 3% or 4%, 5% increase in the prices will not affect our demand?

Historically, what we have seen is there have been multiple instances. But historically, what we have seen is it might impact the volumes a little bit, but it is completely offset by the increase in the ASP. So in terms of value growth, it doesn't have a huge impact.

Okay. And for this year, like I think 170 to 200 stores. So we are still on track to do so?

Yes, we are on track to open 170 to 200 stores this year.

And, like, for next year, like, because 170 to 200 stores, so like, are we going to release another QIP for that because of the cash on the balance sheet, I think we require more capital too.

No, I think the internal accruals will be enough. And currently, we are using a lot of our cash in prepaying our vendors. So once we want to use that money for expansion plans, we just get the creditor days back to normal. So I think that releases almost INR 150 crores to INR 200 crores of capital plus the EBITDA we'll generate this year. And we are in talks with the bank to increase the limits also because our debt-to-equity ratio is still pretty low. So we have some headroom there also.

Our next question is from the line of Sucrit Patil from Eyesight Fintrade Private Limited.

My first question is, I just want to understand forward guidance. Beyond the regular outlook, what are the top 2 to 3 execution priorities you're focusing on in the immediate quarters? And alongside that, what do you see as the biggest risk in consumer demand shifts, competitive pricing or regulatory changes? And how are you preparing to mitigate them while strengthening the company's position in value retail? That's my first question. I'll ask the second after.

Can you repeat your first question, please? There was a disturbance on the line.

Okay, sure. Just want to understand beyond the regular outlook, what are the top 2 to 3 execution priorities you're focusing on in the next few quarters? And alongside that, what do you see as the biggest risk in consumer demand shift, competitive pricing or regulatory changes? And how are you preparing to manage them while strengthening the company position in value retailing space? That's my first question. I'll ask the second after this.

Sure. So in terms of priorities as a business, I think I mentioned it in my con call opening remarks also. The first and foremost has always been product driven, of course. And what we have started now doing is consolidating a lot of fabric purchases and tying up with mills and trying to nominate the fabrics and giving the tech specs to our vendors. So that is already showing a lot of promise and a lot of benefits to us in terms of quality standardization and as well as also economies of scale because of higher volumes and delta in cost price. So, I think one of the biggest focuses for us has been nominating the fabrics now and making the product even better and assortment offering even better. And second biggest area of focus has been technology. So we are using a lot of AI workflows, and we, in fact, just moved our complete data lake on AI-enabled platform. So that is really helping us get data faster. It's also enabled us to give prompt-based analysis to a lot of our business leaders. And I think we're going to continue on that path. And over the next 1 year, a lot of workflows within the organization will be automated. And third area of focus, I would say, is the team. And we have just, in fact, announced two president-level hirings -- and that is one of our areas of focus, getting the team in place because we want to grow at 50% CAGR for the next 2 to 3 years at least. So we need that foundation. And talking about geopolitical risks or consumer demand risk, I think we feel the segment that we are in, the demand is quite inelastic. We think we are selling necessity to the consumers. And for example, kids wear is 25% of our sales. So you have to buy new clothes for your kids every year. You have to buy winter clothes for the family every year. So that's why we don't feel any challenge or any risks per se in terms of consumer demand. It's just about getting as much market share as we can with the right execution and the right product offering.

My second question, is Mr. Pratik also on the call today?

No, he's not here on the call.

Okay. Okay. So my question, again, from a financial point of view, along the same lines, what key risk or challenges do you anticipate in the coming quarters? And what specific measures are being taken to manage margins, cash flow and balance sheet strength, especially in areas pertaining to cost pressures, receivables and compliances?

So in terms of balance sheet, we don't have a lot of receivables. We sell everything on cash. And in fact, like I already mentioned, our working capital cycle should come back to a stable -- 50 to 55 days. Currently, it looks inflated because we do a lot of prepayments. We are one of the best pay masters in the industry. So whatever and whenever we have cash on the books -- we give our vendors the facility to get cash payments of any of their bills, and they offer us a discount on that. So I think in terms of balance sheet preparation, we are looking to target inventory of 90 to 100 days and creditor cycle of 45 to 50 days. So that should cover all the requirements of the business.

The next question is from the line of Kushal Goenka from Mangal Keshav Financial Services.

Congratulations on a great set of numbers. So V2 Retail has been continuously growing at a very high speed. The asset is growing bigger and bigger. Akash, if tomorrow, say, another big corporate house plans to put in thousands of crores and set up a value fashion retail after seeing the growth and return ratios and follow the exact same model, they would have the money, people and the resources. My question is, what qualitative aspect will you allude to that the system is not only growing bigger, but also getting better every day? And what part would take them to learn and understand a long time which money and resource alone will not do?

See, what you're talking about is basically culture and DNA of an organization. So I always tell people this that any fashion company in the world, it's about creating an ecosystem where you're churning out designs that are, I would say, significantly or marginally better than your competitors' offerings, and that translates to higher profitability and higher SPSF because there is no secret process or secret USP in terms of what we do because everybody knows how the complete design pipeline works. But it's more about how we do it, and it's more about the kind of results we get after the whole process. So I think that's a risk that's a risk, that's there in any business, and we always welcome competition. Even today, I would say 80% of our stores already have at least 3 to 4 other value fashion retailers operating in exactly the same space. So we don't shy away from competition. So the performance, the growth has been in spite of competition. So we like to focus on our own strengths. And I think if we keep making that ecosystem stronger, then we don't need to be worried about any big house getting into the space or more competition.

Okay. That's helpful. Just last thing, I requested last quarter to add the people in the presentation who work closely with you and you alluded to do the same. So just a request if you can...

Sure, I'll get that added.

The next question is from the line of Ankush Agarwal from Surge Capital.

I just one thing, like, this quarter, we have seen our gross margins contract a bit Y-o-Y. So is there something to read about it? Because I think last quarter, we had stocked up our inventory in anticipation of, say, the geopolitical disruption. So ideally, that would have provided some cushion in terms of gross margins to us during the quarter. So just trying to understand what went on?

So there was a 30-day period of Adhik Maas in quarter 1. And I think because of that, we saw our full price sales go down from 92% to 90%. But again, the gross margins, we always guide for 28% to 30%. It completely depends on that particular season's sell-through performance. But I think going forward, we should be able to maintain the gross margins from last year.

Okay. And I think last year, because we had done this QIP, we had a lot of cash and plus we are able to offer a lot of prepayments to our creditors and that has led to some benefits on the gross margins. But going ahead, since we will need a lot of cash flow to open stores and we might not be in a position to offer that. So the 30% gross margin that we saw in FY '26, do you think that we will be able to get to that level for the coming years? Or that's a bit of a higher number?

Again, it completely depends on the full price sales, and you can only predict that to a certain degree. So I would say the gross margin should be between 29% to 30%, completely dependent on the sell-throughs and the season performance.

Okay. And any comment on the throughput of new stores? Is it still running under 70% or any?

Yes. So the new stores per square feet sale is about 34% less than our mature stores. So more than 2 years old stores are already performing at a very high level of almost INR 1,070 to INR 1,100 per square feet of sale. So I think in 3 to 4 years, we will see the journey of the maturity, and then we'll be able to comment better. But it's at a very respectable level, all the new stores that we have opened, they are already operating more than INR 730, INR 740 per square feet of sale.

The next question is from the line of Samarth Nagpal from [indiscernible] Family Office.

Congratulations, Akash, on a very steady set. I mean we are used to this. Akash, a couple of queries. I think taking it from the previous participant. Our full price sell-through is normally 92% to 93% in Q1. So is it because of the Adhik Maas only that we have to give certain discounting that it has dropped to 90%? Or was there any other factor that we are seeing some slowness in the market, et cetera?

So I think both are related because of the Adhik Maas, we saw a slowness in the market. And also, there were less wedding dates. So wedding is a huge impact for us, especially in Tier 2, Tier 3 towns. So that's why we saw there was a slight lag in demand. I think that's why you saw the full price sales come down a little bit.

No, I meant that in July, August, so whenever we have the sale period also. So I think the trend has normalized in terms of demand rate?

Yes, correct. But again, quarter 2, all the festivals are shifting to quarter 3. So we'll have to look at quarter 2 and quarter 3 together cumulative only then because bulk of the demand -- bulk of the sales happens during the festive season. So it's very hard to call out the demand side progress just by looking at July and August.

Okay. And Akash, on the inventory part, on the product part, so have we taken any price escalations, I mean, because of the geopolitical crisis and all that stuff. So have you taken any price escalation also?

Yes. So whatever raw material prices have increased and whatever future POs we are giving for the third quarter, we are increasing the MRPs 4% to 5% because we want to maintain our gross margin percentage. So whatever prices have been increased, we are passing on to the consumer.

Okay. And Akash, you earlier pointed out that we would be having faster drops at the stores, right, to reduce the inventory in the stores so that we have a quicker turnaround time with inventory. So any benefit we are seeing that the drops have increased at the store and we are able to utilize the store space in a better way rather than putting the stock in the warehouse. So any idea, any color on that?

So more than inventory days or inventory quantity at the store, it was more about being able to react much faster. And it was more about -- for example, earlier, we had to forecast an article sale and send almost 10 to 12 days of sales cover. So if that article did not sell at that speed, then we were left with 20 to 25 days of inventory. But now because of faster replenishment, we only send 2 to 3 days of sales cover. So that inventory risk has definitely reduced. And whatever area we used for store warehouse at the stores, we converted that into retail area. So in terms of total inventory, it hasn't come down. But in terms of efficiency, it's become better.

Okay. Understood. And on the new store openings, are we seeing any inflationary pressure on the CapEx and all that? Or it remains at a similar level what we used to have earlier?

Yes, definitely. So earlier, the CapEx used to be about INR 1.1 crores. So I think it is the BOM and because of the prices rising, it has moved up to INR 1.2 crores, INR 1.22 crores. So there has been a 10% jump.

Okay. So are we taking any measures in terms of that we would slow down the pace? So nothing of that sort is happening, right? We would be going ahead with our initial plan on 170 to 200 stores?

Correct.

Okay. Understood. And one final question, Akash. I think we have opened close to 100 stores or 120 stores over the last 1 year, I mean, which have already seen 1 year of operations. So do you see any red flags in the new stores or everything is sorted? I mean we are running at 70% efficiency of our matured stores. Just some color on that.

So the whole cohort, I think we've opened almost 260, 270 stores in the last 2 years. So the whole cohort is performing at a respectable level and well within the benchmark of where we say it's a red flag. But there are about 10, 12 stores that are performing below INR 600 per square feet of sale. But again, it's too short a time to conclude on those stores. So we are doing some measures in terms of marketing, in terms of better assortment, in terms of more freshness. But overall, if you look at new stores cohort, they are at a very respectable level of about INR 730 to INR 740 per square feet of sale.

[Operator Instructions] The next question is from the line of [ Neet from Integrity Ventures and Partnership. ]

Congratulations on good set of numbers. I have one question on the same store sales growth, which has decreased in Q1 to around 7.5%. So like is this a new normal growth rate or how -- how our -- like more than 1-year operational stores are growing and how new stores are growing [ at good rate? ]

Yes. So our base of per square feet sale has increased from about INR 650 to almost INR 1,070 for the old cohort of stores. And the guidance for SSSG has always been 8% to 10%. And because of, I think, the Adhik Maas, it had a slight impact. But I think for the whole year, we're still targeting 8% to 10% SSSG.