Vishal Mega Mart Limited (VMM.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '26 Earnings Conference Call of Vishal Mega Mart Limited. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Ms. Shikha Puri from Strategic Growth Advisors for opening remarks. Thank you, and over to you, Shikha.

Thank you. Good afternoon, everyone, and thank you for joining us on Vishal Mega Mart Limited's Q3 FY '26 and 9-month FY '26 Earnings Conference Call. We have with us Mr. Gunender Kapur, MD and CEO; Mr. Amit Gupta, CFO. I hope everyone got an opportunity to go through our financial results and investor presentation uploaded on the company's website and the stock exchanges. We will begin the call with opening remarks from the management, following which we will have the forum open for question-and-answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and the disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would now like to invite Mr. Gunender Kapur, MD and CEO, to give his opening remarks. Thank you, and over to you, sir.

Well, thank you very much, and a very good afternoon, ladies and gentlemen. A very warm welcome to this call. I'll very briefly take you through the quarter 3 '26 and 9 months of FY '26 results and some of the highlights, and then we will open the call for Q&A. Firstly, on the quarter 3 '26 highlights. In this quarter, the company did revenue from operations of INR 3,670 crores. This was a growth of 17% over last year. Our adjusted same-store sales growth for quarter 3 was 9.6%. This is after accounting for the fact that the Durga Puja sales this year fell in quarter 2, whereas last year, they fell in quarter 3. So it is the adjustment of 2.1% we had -- which we had also mentioned in the quarter 2 call. The EBITDA for the quarter was INR 605 crores, which was 19.8% growth over last year. And our EBITDA margin stood at 16.5% vis-a-vis 16.1% last year. PAT was INR 313 crores, which is a 19.1% growth over last year. And PAT margins stood at 8.5% vis-a-vis 8.4% last year. Now I'll quickly move to the first 3 quarters' highlights, the 9 months highlights. Now you would recognize that in the 9-month numbers, all seasonality gets equal between the 2 years. So there is -- so those are, let's say, totally comparable numbers. In 9 months of FY '26, the company did a revenue from operations of INR 9,792 crores. This was a growth of 19.9% over last year. Our same-store sales growth adjusted -- stood at 10.3%. So this is the real number for the first 9 months because the impact of Durga Puja or any other festival shifting from 1 month to the other has been completely neutralized in the same-store sales growth number of 10.3%. EBITDA was INR 1,459 crores, which was a 24.4% growth over last year. And an EBITDA margin of 14.9% vis-a-vis 14.4% last year. PAT was INR 671 crores, which is a 30% growth over last year. And PAT margins stood at 6.9% vis-a-vis 6.3% of last year. We sustained our accelerated new store opening momentum. And this quarter, in quarter 3, we opened 29 new stores, 12 of these were in South India in the states of Kerala, Andhra Pradesh, Karnataka. We also opened 2 new stores in Gujarat, where we have a total of 6 stores now and 2 in Maharashtra, where we have a total of 4 stores now. This is consistent with our growth strategy that we had articulated. We further opened 4 new format stores. We have a total of 10 small format stores, and these are doing quite well. For the 9-month period, total new store openings stand at 80. You would recall that at the time of our IPO, we had guided to 80 to 100 new stores every year. So for the current financial year, we will end at the upper end or slightly over 100 stores vis-a-vis that guidance. Our total store count now stands at 771 as of December end, and we are present in 517 cities in India. We added 24 new cities in this quarter. Our trading area stood at 13.2 million square feet. Our own brand's contribution to revenue has further gone up by 100 basis points and now stands at 74.5% for the first 9 months of the year. Further, our quick commerce initiative has expanded to 723 stores across 485 cities in the country. And our registered users on quick commerce have increased to 12 million people across the country. We believe that India is poised for the next wave of consumption growth, aided by initiatives such as GST rate rationalization and reforms in direct taxation and are very optimistic about the positive impact that these changes could have on our business in the years to come. With these brief opening remarks, I would now turn to the moderator to start the Q&A session. And I would be very happy to answer any and all the questions that you may have.

[Operator Instructions] We take the first question from the line of Devanshu Bansal from Emkay Global.

GK, the normalized SSSG, as you mentioned, is closer to 10%. I wanted to check if this is the run rate that we should consider or there were additional short-term weakness due to delayed winters. And even at the start of the year, there was some preponement of festivities which happened in Q4, so -- which may have had some incremental impact. So wanted to check if there were some additional weaknesses in this 9-month performance.

Nothing significant. I would say that the first 9 months SSSG of 10.3% is broadly our average achievement in terms of SSSG and we see no weakness around that number. Of course, every quarter, there are these minor issues, which impact the business either positively or negatively. For example, the last quarter, there was some delay in winter for the -- specifically for the month of December. So that may have had some small impact on our business. But overall, I must also tell you that our winter merchandise, same-store sales growth was also double digit for the full quarter.

Understood. Understood. Just a small follow-up here. Can you split your growth in terms of transactions in bill size than of this 10%, how this is broadly divided.

Majority of this is because of increase in transactions. And half of that or slightly less than half of that was because of improvement in average bill value. So as you have seen in the earlier quarters also, majority of our growth is driven by transactions and consequently, new footfall in the store because we are probably gaining market share from all our competitors and the mom-and-pop stores.

The intent of asking this question was to -- because there was this GST decrease. So ideally your bill size should have improved. So that is yet to play out, right? So from that perspective, I was checking.

No, I think that of our total growth, you can assume that about -- one second, just let me give you the exact numbers. 70% has come because of improvement in transactions. And 30% has come from increase in bill value. So those are the exact numbers.

Sir, last question from my end. We did a winter and festive marketing campaign with Manushi this time around. So what is the intent behind such campaigns? Was this undertaken to improve our growth profile with the recruitment of new consumers? Or was it related to focus on improving gross margin with premiumization of our offering?

So it is to dramatize our proposition amongst our consumers, which is to make aspirations affordable. And Manushi is aspirational for our mass market consumers in 2 ways. One is that she is an extremely fashionable, young upcoming actress. But equally, she has a lot of commitment to activities which are aimed at doing good to other people and also to the society at large. So she started several campaigns and several initiatives in the area of, let's say, CSR. So Manushi in that sense was a good spokesperson for a promise of do good, look good, right? Because she represented both the ideas. One is do good and the other is to look good. So -- and I must say that the campaign has been extremely successful.

Sir, do we foresee...

Devanshu, I do apologize to interrupt you there. If you could please join back the queue for follow-up questions. We take the next question from the line of Percy from IIFL.

Just wanted to understand that the deceleration in growth that we've seen from 22.5% last quarter to 17% this quarter, that entire 500 to 550 bps change, is it just because of the festive timing change? Or is there some other reason for it?

Largely, it is a festive timing change, Percy. We have itemized the impact of the preponement of Puja this year, and that impact was 2.1%. Now that has a further impact on the EBITDA numbers for the quarter and the PAT numbers for the quarter. So I would say that it was almost entirely because of the change in the festive timings. Further, Percy, if you want to look at the numbers for quarter 2, in fact, I highlighted this during the analyst call for quarter 2, our growth, same-store sales growth was 12.8%, adjusted for this onetime impact, it was 10.7%. Further, we had spoken about our EBITDA view where we said that we will grow our EBITDA by about 25% Y-o-Y. In quarter 2, we grew that by 30.5%. And likewise, we had guided that our PAT will grow at 30% and PAT had grown by 46.5%. Now we can attribute all these incremental numbers reported in quarter 2 to the fact that the Puja festival this year fell in quarter 2, whereas last year it fell in quarter 3. So almost entirely, it can be attributed to that. The one thing which I'll add to further underline that point, if you look at the 9 months numbers, the first 9 months of the year, till December, all this gets equalized, then change from quarter 2 to quarter 3, et cetera, or quarter 3 to quarter 2 doesn't matter. So if you were to look at our first 9 months same-store sales growth, it is indeed 10.3%. And our EBITDA growth for the first 9 months is 24.4%. And our PAT growth for the first 9 months is 30%.

Understood. Understood. So basically, yes, so I was also doing the same thing. So averaging 2Q and 3Q, SSSG around 10%. So is that what we can expect in the near future as well around a 10% kind of SSSG? And secondly, on the total sales growth, again, it would be about 19% to 20% on an average. So again, is this something that we can sort of take going forward in the near to medium term?

That is what we expect Percy, and that would be our endeavor.

Understood. Understood. Secondly, can you just tell us a little bit more about what you are doing specifically and differently versus the street in order to keep the SSSG at close to a double-digit number because if we look at the retail space overall, you are clearly outperforming that. So just wanted to understand, one is what are the initiatives that you have done in the past or you're putting in place now? And secondly, how are you differentiated versus other retailers so that you're getting a differentiated performance?

So firstly, I would say, Percy, conceptually speaking, our proposition is extremely relevant for the Indian customers and consumers at this moment, which is to focus on making aspirations affordable because as you would find that the aspirations mostly led by the digital penetration or the penetration of smart mobile phones is growing exponentially. Whereas from time to time, there are affordability challenges. The fact that we bridge that gap is extremely relevant for all customers in this country and more specifically for the younger customers. Our same-store sales growth has 3 components. Firstly, I would like to mention that of our same-store sales growth, the most dominant component is upgradation from mom-and-pop stores and market share gain. Difficult to differentiate between these 2, but that is the largest bucket. Then the second bucket is the increase in the average bill value of the existing Vishal customers, right? So first is new customers; secondly, increase in the average bill value of existing customers because they buy 1 thing more or 2 things more. And last but not the least is an improvement in our average selling price. Now again, for the first 9 months of the year, our highest price points which are the fashion price points, grew on an SSSG basis at 14%. Mid-price points grew at 9% and our opening price points grew at 6%. So further, we get 2% kind of growth because of upgradation, which is continuous of customers from opening price points to mid, and from mid- to higher price points. So to summarize, 3 parts. Market share gain, both from mom-and-pop stores and other retail. Our customers buying more things 1 more or 2 more. And likely the increase in average selling price by upgrading customers from opening price point to mid-price points and mid price points to the upper or the premium price points. So these 3 components is what drives our double-digit same-store sales growth. Now the relative impact of these 3 is different at different points in time. But our entire business is focused towards delivering an end outcome of these 3 as a double-digit sales for sales growth. So for example, when customers are -- their incomes and specifically the discretionary incomes are going up significantly. We find that the impact of people buying more, more number of things is higher. But at this point in time, we are finding that the biggest impact, which is driving our growth positively is volume growth, which is led by us gaining market share.

Got it, sir. My second question is on competition. Do you find that in your strongholds, the pace of competition of opening stores have sort of accelerated over the last 1 year or it continues at whatever pace it was earlier?

It keeps changing from time to time, Percy, but in the last 9 months or 10 months, I would assume that it's pretty much the same, the pace of new store openings.

We take the next question from the line of Manish Poddar from Invesco AMC.

Hi GK sir. I just had 2 questions. First is this point which you mentioned about higher price point growing faster than mid and lower. Is this a market phenomena? Or this is because of company interventions?

This is totally because of company interventions, Manish. So for example, what we are doing deliberately as an input is that in every category of ours in every large merchandise category, as we call it, every season, we introduced one higher price point where the fashionability and functionality is significantly better at a higher price point. Equally, we improved. I mentioned earlier that we maintain our gross margins at the same level. And on the buying savings that accrue to us because we are buying more volume, they get invested in either quality improvement or pricing action. So we keep improving the quality of merchandise even in our existing price points and take deliberate promotion initiatives to get customers to try the higher price points. So this is totally deliberate. I wouldn't quite believe that it's a general market phenomenon.

But would you say the market is actually moving the other way? I'm just trying to -- you're trying to -- because then that 10% outcome is a great outcome, if the market is moving in the other directions, is what I'm trying to get some context.

Manish, there is no real data for me to come to a definitive conclusion on that. So I can generally reflect the view in the last, not specifically in the immediate past, but in the earlier quarters, where there was a pressure on consumption and so on, and there was a lot of talk not only in retail but the consumer industry in general about consumption pressures. Now if that were to be true, which I believe was certainly true, then it's unlikely that people were buying more and more expensive price points. It's unlikely. But quite honestly, Manish, I don't have any data on that.

Just one bit when you -- I understand you are in different pockets. But are you sensing, let's say -- let's say, players across the street in terms of both discounting going materially higher compared to what it was last year? I understand Q2, Q3 festival was split. And on the same side, when you're talking about rentals, are you seeing any sort of landlords now wanting to prefer larger, probably more organized players compared to, let's say, a lot of new players, which would have come up in the last 2, 3, 4 years. Is there any sort of trend happening on that front, these 2 variables, let's say, 1 from peers wanting to get cash because -- and doing more discounting because liquidity is crunched. And the other part is on the rental part, where the landlords wanting to take you on board.

So Manish, on both -- on the more discounting, there is some evidence that, that is happening. And I'll give you specifically the -- again, the underlying factors for that. In Puja festival, which I mentioned earlier, fell in quarter 2 this year and not in quarter 3, we had a certain situation in Assam for 6, 7 days. During the peak Puja festival, when majority of the buying takes place, where a very popular leader and singer of Assam lost his life in a very unfortunate accident overseas because of which the state of Assam was virtually shut. It had a huge impact on people. And that Assam is one of the largest states for Puja festival. And when you have sort of shutdown 4, 5, 6, 7 days in the very last peak period of Puja, it does impact everyone. And therefore, in the balance period and in the balance states, people do make efforts to promote more or discount more to ensure that they are not stuck with very large inventory. Likewise, earlier in response to a question I mentioned that in December, specifically the onset of winter was delayed by -- at the very least a couple of weeks, if not more. And again, as you know, winter is a very seasonal product, in terms of merchandise. So people do then tend to discount more aggressively to ensure that they are not carrying forward all that merchandise because, as you know, the next opportunity to sell would be the next year December, which nobody really wants. Now this is what happened in the market. Having said that, I must offer a comment on our numbers. Our winter sales still for the entire season grew at strong double digit, same-store sales growth. So the 2 are different. One is what really happened in the market was the first part of my response. But the second was also to differentiate what happened to us. And therefore, we did not quite suffer from that issue.

Any pressure on the rentals.

Yes, No, sorry, you also asked me about rentals. See, rentals are relevant in the micro markets. It's not across the board, but we are not seeing any significant pressure on rentals. There are some micro markets where if there is a sudden increase in number of retailers for a very short period, the rentals go up. But by and large, it's the same because equally, there are markets where there are store closures, and therefore, the rentals become a little bit more softer.

Manish, I do apologize to interrupt you. Could you please join back the queue for follow-up questions. [Operator Instructions] We take the next question from the line of Manoj Menon from ICICI Securities.

GK, Amit and team, good performance. Just -- I know that or rather fully aware that questions about seasonality, a lot of clarifications already offered. Just only one aspect, I just want to check with you is that, let's say, in the last decade plus of your experience, is it largely the same way it plays out? Or is there something different which has happened this year in terms of the festival timing? Is it just as per your historical understanding is the same template is playing out? Or is there anything else you want to call out?

It's the same, Manoj. It's the same because as you know the -- our festivals follow the Hindu calendar and not quite the English calendar that we are used to. So they do fall in different months, almost every year. So it's a very normal thing which happens across the years. But in the last 10 years, all I can say is that we would have encountered every kind of business, i.e., Puja in quarter 2, Puja in quarter 3, we've experienced all the combinations. So depending on when the festival is falling in the coming period, we do adjust our buying and our promotion and advertising plans.

Loud and clear. And the second and last question for now in your experiments, which you would be continuously doing on newer markets in terms of expanding the total addressable market, anything which you could call out in terms of any of, let's say, if I can use the word laboratory experiments you're doing, which is finding scalability and also a linked question because we are allowed to ask 2 questions on your comments about quick commerce, the learnings from the last few months.

Manoj, I'll take on the pilots first. Firstly, let me just touch upon the expansion into new states, which is a part of these experiments that we had spoken about. So in Kerala, we continue to make absolutely great progress. As we speak now, we have 19 stores in Kerala, which are operational performing very well and another 20-odd stores in pipeline. So that part is going very well. In Maharashtra, we've expanded our pilot to 4 stores and in Gujarat to 6 stores. Now we have currently some feedback on performance for the last 2, 3 months, but that's been largely autumn/winter. We will watch it for some more time, but keep opening 1, 2 stores in spring/summer also and then come to a conclusion on that. And finally, in our small format pilot, as I mentioned in Q2, we had 6 stores, now we added 4 more. Obviously, we are feeling more confident about that. So at this moment, we have 10 new stores in small format and they're performing decently. As you rightly said, in addition to these, we are always -- have at least 1 more idea in pilot or in laboratory. So there is that also, but it's a bit premature to speak about them because they have not even reached the pilot stage as yet. Quick commerce, Manoj, quick comment. We have expanded to 485 cities now and to 723 stores. So that's good. Our revenue continues to grow and our contribution to the store revenue by quick commerce continues to grow. So we are going about it very systematically and in a sustainable fashion, and we will continue to build.

We take the next question from the line of Garima Mishra from Kotak Securities.

I just had a quick question on the store addition numbers. Now you clearly said that you're on track to actually surpass your earlier guidance of 100 stores for the year, the higher end of the guidance. How should we look at this number for the next year? And internally, in terms of execution capability, does the organization have the capability to actually add a much larger number of stores per year as well?