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V2 Retail Ltd
Earnings Call Analysis
Summary
Q1-2025
The company reported Q1 FY '25 revenue of INR 415 crores, a 57% increase year-on-year, with a gross margin of 29%. EBITDA rose to INR 55.5 crores, up 56%, and PAT surged by 162% to INR 16.3 crores. The company expanded by opening 10 new stores, bringing the total to 127. Management targets FY '25 pre-Ind AS EBITDA margins of 7-8% and PAT margins of 4.5-5.5%. Same-store sales grew by 37%, and the focus remains on product quality and affordability. The company aims to add 40-50 stores, supported by INR 110 crores investment through internal accruals .
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Ladies and gentlemen, good day, and welcome to V2 Retail Limited Q1 FY '25 Earnings Call. [Operator Instructions] Please note that this call is being recorded.
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 profit [indiscernible], which are subject to several risks and uncertainties and actual results could materially differ from those in such forward-looking statements.
Ladies and gentlemen, I now hand the conference over to Mr. Akash Agarwal, Whole Time Director, V2 Retail. Thank you, and over to you, sir.
Good afternoon, everyone. A very warm welcome to our quarter 1 FY '25 earnings conference call. Along with me, I have Manshu Tandon, our CEO, and Marathon Capital, our Investor Relations team. I hope everyone has had an opportunity to look at our results. The presentation and press release have been uploaded on the stock exchanges and our company's website.
At V2 Retail, our mission is to democratize fashion by offering high-quality and the apparel at affordable prices, value-conscious customers across all tiers of cities. We achieved this through operational excellence, strategic expansion, competitive pricing, our customer-centric approach and a strategic use of technology.
Our diverse product range, competitive pricing and exceptional shopping experience, ensure that we provide significant value to our customers. As we continue to grow and innovate, we remain committed to making fashion accessible to all, uplifting competing and driving sustainable growth. Our business model has increasingly evolved to deliver desired customer propositions. Emphasis on our own designing and credible quality, mutual responsiveness for emerging consumer preferences, coupled with relative price stability contributes to our distinct market position value retail apparel space.
Let me start with some key updates. After the historic FY '24, we are thrilled to start the current financial year with the highest ever quarterly sales during quarter 1 and a 162% increase in year-on-year PAT. The company opened 10 new stores during the quarter, taking our total store down to 127 stores. Our store expansion strategy is focused on penetrating underserved urban and rural markets and maintaining a strong presence in Tier 1 and Tier 2 cities to reach a very diverse customer base. We aspire to add between 50 to 60 stores on a net basis through internal accruals in line with the commitment to sustainable growth driven by cash flow in FY '25. The strong acceptance of our differentiated product offerings at full price is the testimony of our customer-centric thinking of providing fresh variety, good quality at best price.
So the growth across all our stores have been encouraging, translating into a robust same-store sales growth of 37% in quarter 1. We have been able to consistently deliver high double-digit SSG for the last quarter due to this approach. The volume growth was 55% in the first quarter. The full price sales contributed 93% in the first quarter compared to 84% in the corresponding quarter last year. .
Through efficient supply chain management, streamlined operations and strategic inventory management, we have been able to maintain cost effectiveness without compromising on quality. We believe that our sustainable and scalable business would help us improve ROCE and ROE going forward.
Now I will hand over the conference to Mr. Manshu Tandon, our CEO, to give you an overview of our operational performance during the quarter.
Good afternoon, everyone. I'll give you a brief on the consolidated performance highlights for Q1 FY '25. So revenue from operations stood at INR 415 crores, registering a growth of 57% on Y-o-Y basis. Gross margin stood at 29% for Q1 FY '25. EBITDA for the quarter stood at INR 55.5 crores as compared to INR 35.6 crores in Q1 FY '24, registering a growth of 56% on Y-o-Y basis. EBITDA margin stood at 13.4% for Q1 FY '25. PAT for the quarter stood at INR 16.3 crores as compared to INR 6.2 crores in Q1 FY '24, registering a growth of 162% on Y-o-Y basis.
As on June 30th of 2024, the company operates 127 stores with a total retail area of 13.64 lakh square feet. The company opened 10 stores in Q1 FY '25.
So with that, I will leave the floor open for questions.
[Operator Instructions] The first question is from the line of Ankush Agrawal, Surge Capital.
Firstly, what kind of pre-Ind AS EBIDTA and PAT margins are we looking for, for FY '25 and for the coming years?
So we talk about pre-Ind AS numbers, this year, we are targeting an EBITDA of 7% to 8%. And going forward, we want to target pre-Ind AS EBITDA percentage of 8% to 9%.
Okay. And how much is that transit to net margin like on a PAT basis?
So I think in FY '24, our net margin was about 3.5%, so you can expect this year's PAT margin to be 4.5%. And going forward, it should be between 4.5% to 5.5%.
Okay. Secondly, can you share the share of our coal proprietary labels and own manufacturing for FY '24? And how should we see that number going ahead?
So our private label contribution is almost 80%, and going forward, the target is to make it a 100% private label business. So we are moving in that direction, because 1 year back, that percentage used to be 60%, so in 1 or 2 years, we want to be a 100% private label business.
Just a clarification, till FY '23 is on the annual report, the revenue share from proprietary labels was 40% in FY '23. This as per annual report. So when you see private label and proprietary label, is there a difference in that or that number has moved from 40% to...?
So you're talking about financial year, I was talking about calendar year. That is why there's that confusion. So this year, when I mean, I mean, from January till July, the percentage is 80%. So if you -- like if you convert it to financial year, I think it was 40% and 60%. And this financial year we close at 80% and in 1 or 2 years, we plan to take it to 100%.
Got it. The last question is on the gross margin. So over the last couple of quarters, we have seen gross margin tapper off a little bit every quarter. On one side, you have continued to maintain that, you are trying to pass more value to your customers. But on the other hand, what is also true is the share of revenue from proprietary labels have increased. The share of sales at MRP has also consistently increased, so which should act to gross margin. So from all this perspective, where do you expect this gross margin to settle eventually?
So we pass on all the benefits from our own production as well as private labels for the customer. So we do not get an extra gross margin on our private labels. And we are selling more at full price. But now our input margin is strategy is such that we are targeting a gross margin percentage ranging from 27% to 29%, because we want to give maximum value to the customer, and we want to be the market leader in the value fashion space.
The next question comes from the line of Palash Kawale from Nuvama Wealth.
Sir, I hope I'm audible. Congratulations on very good set of results. Sir, my question is related to market leader in category, which will be Zudio's. Sir, do you foresee a strong metrics going closer to Zudio in coming years? And if yes, then what are you planning to do to like take it closer?
So there are 2 major metrics that we look at and we focus on rather than just per square feet sales or per square feet cost or GP per square feet, we focus on EBITDA percentage, which is free pre-Ind AS EBITDA percentage and the ROCE and the ROE of the business. So going forward, our aim is to be at par or even be better than the best players in the space. So that is why I said going forward, we want to keep increasing our EBITDA margins pre-Ind AS to move to 9% first and then further.
Okay, sir. And sir, did I get you correctly that you are planning to add 60 -- 50 to 60 next stores this year?
40 to 50.
Okay, 40 to 50 stores.
We have already added 10 stores. And the plan is to add about 30 to 40 more.
Okay. Okay. Got it, sir. And sir, my next question is as you think goes right in like the next 2, 3 years. So what that opportunity in front of us in terms of store additions? What do you see in that room for expansion in the next 3 to 4 years for V2 Retail?
So it completely depends on the performance and the execution and how the new stores that we are opening are doing. If we continue to see the kind of growth that we are seeing and the kind of product acceptance that the market is showing us, then after this 40 to 50 stores this year, we might open another 60 to 70 stores next year. So it all depends on how the business is performing, because we don't want to chase just growth by compromising on profitability. So the first target is for the next 3 to 4 years to grow at least 30% to 40% both in terms of revenue and EBITDA.
Got it. Got it. And sir, what was our footfall growth for the quarter?
I'll have to check the exact number, but we started tracking footfall from this year, because old technologies were not accurate enough to be relied upon. So we will be able to give the comparison of footfall from next year onwards, because we started collecting that data, I think, about 5 months back.
The next question is from the line of Jagvir Singh from Shade Capital.
So sir, what is the current debt position?
So we -- I think the current debt on the books INR 78 crores. So what we have is it's a CC limit that we have from the bank and we give bill discounting feature to all our vendors where they can get an early payments of the bill. So we use -- mostly, we use the limit for those purposes.
Sir, second question related to the competition. SO Zudio is, I think, in the some -- at upper level, because they start from INR 450 or INR 500? So is it V2 -- sorry, Vishal Mega Mart or V-Mart?
So there are different tiers of competition. So one would be the local mom-and-pop stores, which is the unorganized retail. One is the national level retailer. So there is a certain level of overlap because Zudio starts selling the T-shirts for INR 199, but their ASP is almost 80% higher than ours. So like there is competition from each space, I would say, whether it's Vishal, V-Mart, Zudio, but we try to focus on ourselves. And I think in India, the market is big enough to easily accommodate 5,6 big national players, because the ship from unorganized to organized retail is accelerating, and that is how the organized retail is going to grow at high CAGR for the next few years.
Okay and sir, second question related to the manufacturing. So how much is on the own manufacturing?
So about 16% of our sales are own manufacturing, but we don't plan to open any -- 16%, 1-6, but we don't plan to add anymore units. So as we are opening more stores and as our sales are growing, this contribution is going to come down.
Okay. So sir, in the first innings in the Vishal Mega Mart, I think, inventory just help the problems. So what we have learned from them and so what is our strategy for the new innings?
So one of the biggest learnings was not chasing growth blindly by compromising on profitability. So we make a store level EBITDA every month. We sit down, we take decisions on low-performing stores. And I think in the history of V2, it's the first time that not even a single store is EBITDA negative on a YTD level with the corporate cost. So like we try to forecast cash flows, EBITDAs, and we don't keep certain business metrics in check before taking the next leg of expansion.
And if you talk about learnings, there have been 15, 20 learnings, this call will go on, but we have learned from those mistakes and implemented a lot of checks and balances in order to not open that store. So there's a lot of checks before finalizing a new store. There's a lot of checks on inventory control. Our old and aging inventory has come down drastically. So I think everything points towards a very positive outlook.
[Operator Instructions] The next question is from the line of [ Abhishek ] from ABS Capital.
Am I audible?
Yes, sir.
Yes. Yes, you said that ROE will increase going forward. Can you throw some light as to what ROE numbers you are targeting internally going forward?
So the ROE number that we're targeting going forward should be around 20% to 22%.
Okay. Okay. And going forward, how much same-store growth we target internally?
I think 10% is a very good number. So going forward, even if we achieve a 10% SSG, I think that's very good for the business, because it's a fixed cost business.where even if you grow your sales by 10%, your profitability grows multifold. So going forward, with a higher base, I think even if we get 10%, a double-digit SSG is a good SSG.
And just one clarification. In the long term, just now you told that revenue growth you are targeting internally is around 30% to 40% year-on-year, right?
Yes.
The next question is from the line of Shrinjana Mittal, RatnaTraya Capital.
Congrats on a good set of numbers. So I have 3 questions. One is on the employee cost. So this quarter, the employee cost is little a little bit on the higher side. So I wanted to understand that is it because of some incremental cycle? Or is it just new employee addition? Can you just throw some light on that?
So most of it is because of the new store addition. So a lot of the hirings have done -- needs to be done at least a month or a couple of months prior to the opening of the store. So every quarter, we are planning to open 15 to 20 stores. So if you look at the per square feet basis, there's not much change. But in the absolute numbers, as we keep growing the store base, this number will rise.
Understood. Understood. And on the -- one question on the same-store sales growth. So how do we calculate our same-store growth, like in the denominator, do we include stores which are greater than 1 year old as of date or what is the...?
Yes. We include all the stores that existed in 31st of March 2023.
31st of March 2023, that is for this year's same-store?
That is for quarter 1 SSG, because all the stores should have been there for the whole quarter of 2023 as well as 2024. That is the only criteria. So the stores that opened during the quarter of -- first quarter of FY '24, we don't take that in SSG, the opening number of stores, yes.
Understood, understood. Okay, One more question on the seasonality. Like give some color. So I understand that Q3 is a bigger quarter for us. But Q2 also relative to Q1 is a little bit on the lower side even in terms of margin, so why is that, if you can give some color on that?
Yes. So Q1 and Q3 are the biggest quarters for us because Q1 is the main wedding season in the summer season and Q3 is effective in the winter season. And Q2 as July and monsoons and even Q4 has January and February, which is end of season for winter and pre-winter, so that is the seasonality impact in retail. But I think going forward, all our quarters will be EBITDA positive.
The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.
My question is on gross margins. So just want to understand the decline in the gross margin in this quarter. And how do you see this going ahead, considering the fact that Q3 is one of the strongest quarter for us. So whether this quarter has some impact of late or discounts, which impacted the margins, which will not be there in the next quarter? So just understanding for [indiscernible]?
Yes. So in fact, there were lesser discounts, but still, there's a decrease in gross margin percentage because like I said, it's a strategy of the company. We are not focusing on gross margin percentage rather than we're focusing on EBITDA percentage. So if we reduce our gross margin by 10% and that increases our sales by 15%, 16%. So that is ultimately beneficial for the business. So it's a business strategy. And going forward, we are targeting a gross margin of 28%, 29%.
Okay. And sir, I just wanted to understand how the demand environment is like how it was last year. And compared to that, how the demand environment comes in? Some of the important states [indiscernible] that? And how the festive season will be for us there maybe for the 3 -- last year quarter 3 was much, much stronger for us, so considering that, how do you expect this year's festive season?
So if you talk about the demand scenario, I think the 37% SSG, the number itself says a lot, and we have seen this consistently over the last 4, 5 seasons. And now it's very hard to differentiate how much of that is because of our own strengths or the work that we have put or how much of that is the overall market growing. But we have seen an amazing demand. And for quarter 3, we hopefully want to continue the momentum, and we are working hard towards that. And I think this trend should continue, because we are getting a very good feedback from our customers, both about the price proposition as well as the product offering. So I think this is a trend that should continue in the future quarters. Because we have seen this in July also. So in July, our same-store sales growth is actually better than the Q1 numbers.
The next question is from the line of Ankit Babel from Subhkam Ventures.
Congrats on good set of numbers. My first question is on your working capital. So what was the inventory and creditor levels at the end of June quarter?
So if you look at the stand-alone basis, the inventory days were 81 days, and the payable days was 40 days. So our net working capital in days were 42 days.
No. I need absolute numbers at a consolidated level.
You need the absolute. Okay. So the absolute consolidated level, inventory was INR 439 crores. And the payables was INR 251 crores.
Okay. And also the -- as you said that the aging of the inventory has reduced a lot. So just for my understanding, what would be the share of inventory, which is more than 1 year old and what it was, say, a couple of years back, just to see what kind of improvement is there?
So a couple of years back, more than 1 year inventory was almost 23%. And now that number is down to 7%. So idea is to take this number down to 0 by end of next year.
Great, great, great. Okay. And what are your plans for the upcoming festive season? I mean, what are your expectations?
We don't share our internal expectations, because we are very bullish because every month, the growth and the demand and the customer acceptance is surprising us positively. But like I said, we always give forecast of 30% to 40% revenue and EBITDA growth. I think this year is the same.
Okay. And just a clarification on your sales promotion expenses. Now just wanted to understand for the accounting treatment, do you reduce it from the revenue, or show it as a part of your other expenses?
So it depends on the kind of marketing expense. So if we are doing, for example, a newspaper ad or we are spending on ATL and BTL, those are a part of expenses. But most of our marketing spend is in terms of gift given to customers or special discounts on some items. So that is all part of the cost of goods sold. So that is already a part of the gross margin.
No, no. But you show it by reducing it from the revenue or you show it by adding it to your raw material costs? How you account it?
So it's added to revenue also and it's added to the cost of goods sold also.
Okay. Yes. Okay. And last question is you mentioned that you want to increase the share of private label to almost 100% in the next 2 years. How is it going to benefit you? In what terms? I mean, either on the profitability or on the tending of the product? Or how is it going to help you?
It's just that the customer starts identifying with the brand. So each brand will have their own story, and each brand will have their own identity. And in 2 years, each of our brands will have a turnover of almost INR 200 crores, INR 300 crores to INR 500 crores. So it becomes a brand in itself and then the customers have size standardization and they have that trust. So that whatever product they're buying of that brand will be of a certain quality or a certain standard. So that is the only benefit that we get.
The next is from the line of Naveen Baid from Nuvama Asset Management.
I just want some sense on what will be the marketing spend. It's of the gift that you mentioned and gets clubbed with your COGS and revenue. What is going to be the marketing spend except that as a percentage of your top line?
No. Your voice is not clear. I just understood what's the marketing spend? I didn't understand anything else.
Correct. Correct. That's correct.
So it's less than 1% of total sales.
Okay. Is it going to be around the similar level?
Yes. Because we have understood that the product is the best brand ambassador and there's a lot of word-of-mouth marketing that's happening, because all this growth is -- actually, we have reduced our marketing spend from previous years. So that is why the main focus is on improving the product offering and giving it at the best price possible.
The question Himanshu Shah from Dolat Capital.
Congratulations on a very strong set of numbers and last 18 months' performance. A couple of questions. One, the store additions that we are targeting for, will it be in the existing areas of operations or it could be coming from your geographies you're trying to add newer state?
So this 40 to 50 stores that we're opening this year, like most of it is in the similar clusters or the same state that we already present in, but maybe in the next leg of growth, we will have to enter new markets. But currently, it's all the same states in the same prospects that we already present in.
Okay. And secondly, how much more use has been left from a revenue per square foot. Can you give an idea what top 20% of the stores, what kind of throughput they must be doing on an annualized basis?
Like I would not want to share those numbers, but I would tell you that we have a lot of stores that are doing about INR 1,400, INR 1,500 per square feet monthly sales also. So there is no potential, it all depends on your -- all the kind of execution and the kind of product assortment that we have in the stores. Because in terms of capacity, it's huge, and it all depends what percentage of the target markets that you're present in, are you actually catering to.
So if you have a very strong brand that you've been able to stay in touch with the latest trend because with our markdowns and the markups, nobody can beat us in price. So it's all about product assortment. So I think that problem is not a problem till we reach maybe 2x or 3x of where we are right now in terms of per square feet of sales.
2 to 3x your thing. But right now, some of the stores would be at around INR 14 000, INR 1,500 is where you are -- what you are highlighting the top performing stores.
Yes. And even they are growing at almost the same growth as the numbers that we are posting. That is the beauty.
Okay. So on a per square foot basis, you are saying that at optimal level, the number can even double from here on over the long run?
If we do everything right, of course.
Okay. And then on rent part how are the rent cost, what kind of escalation you are seeing over there? And is our model more of a variable or sort of fixed rental basis?
Is completely fixed rental basis and our rental cost are INR 54 per square feet. And I think it should be at this level, this accounting for inflation, obviously, but it should remain at similar levels. We're not seeing a big change.
Heartiest congratulations and all the best for the upcoming quarters and years to come.
Thank you.
Next question is from the line of Sameer Gupta from India Infoline Research.
Pardon me for my ignorance, I've not been part of previous calls for the company. Just wanted to understand this same-store sales growth a little bit in detail. So you've done 31% in FY '24. This quarter is 37% and you said July has also been strong. So firstly, when I look at other companies, especially since FY '24, it has been a very tepid consumption environment and especially in the lower income segment plus competition has also intensified in the value fashion segment across the board. So I mean, this 37% growth has continued for you. So what are the drivers here?
So I would say the commentary about the whole market situation depends on who you're talking to, because I know a few retailers, myself was showing good numbers and showing good growth. So like I said, it's all about the kind of execution that we have done, and it's the hard work for the last 3, 4 years because we were in the consolidation phase as you can see, like we didn't open a lot of stores, we shut down a lot of loss-making stores. We completely changed the approach to business where it was not a product first approach. .
So now we have been focusing on product. And I would say this growth has been driven primarily by product development, where 2 years back, only about 5% of the goods in our stores were designed in-house, whereas now that number has almost reached 30%, 35%. And going forward, we're going to -- we're targeting this number to reach 80%. And in this 30% to 35%, we are seeing at least a 20% higher throughput or per square feet [indiscernible] you can say, then the designs that we get from the vendors. So if I start listing down the things, it will be like a long list. But I would say it's completely the main driver behind this has been product, to focus on product.
Got it, sir. That's very detailed. Just a follow-up here. So you're also saying that sales per square feet potential itself is 2 to 3 years from current levels. But your SSS growth guidance that you mentioned is 10%. Now that again raises the question that from a 37% will it go down to 10% if the SPSF use itself is there to be exploited?
So when we closed last year at I think, 29% or 31% SSG, even this year, we had targeted a 15% SSG, because we thought it's a higher base now, even if we grow at 15%, that's why I said we are positively surprised. For this year, we are still targeting a higher SSG. But when I said 10%, that was from next year onwards. So even if we close this year at INR 950 to INR 1,000, even if you're growing 10%, then you're growing INR 100 per square feet next year. So we can easily double in like, I think, 5 years.
Given the way the first quarter has gone by, would you want to revise that guidance?
Again, I would not want to revise the guidance for next year. We have already revised the guidance for this year, the rest of the 9 months. But if you talk about next year onwards, we are happy, we want a minimum SSG of 10%. Any double-digit SSG is good enough for us.
And the next 9 months, you're saying 15%?
Yes, 15% to 20%.
The next question is from the line of Mr. [ Manoj ] from [ Kiva ].
First, I wanted to ask, sir, will we do the call now every quarter? And also I wanted to congratulate you for a great performance.
Yes. Now we're going to do the call every quarter.
And we -- if I'm not wrong, we had implemented SAP HANA way back in 2017?
No, we had implemented SAP, but we have implemented HANA, I think, in 2022.
And can you share, has that been very helpful one of the things? And are we looking to improve the metrics there with the #1 player? Are we putting more work there? Is that has been that one of the secret sauces for you in the last few quarters?
First, could you repeat your question? You spoke about SAP HANA and then your voice broke?
Like has that been one of the secret sauces for us? And are we looking to benchmark? So I know the largest trend they use SAP HANA really effectively, are we trying to benchmark with them?
Like we are not benchmarking with anyone, so we are directly in touch with SAP, and we are benchmarking with the industry best practices, and we are spending constantly and I mentioned in my opening statement also that technology is a big part where we want to innovate and create some sort of differentiation. So there's a lot of development that's happening. So we have an SRM. We have store app. So there are many projects that are happening and that are being implemented across. So I think we will see the benefit of that going forward.
But if you talk about SAP HANA, it's just a database change that the data has been moved from Oracle to a HANA database. So obviously, the reporting is faster, the extraction of data is faster, so we have better MIS and more efficient DC operations, but only that cannot be the secret sauce behind this growth.
Then can you explain that you said 30%, 35% is the in-house design products and private label is 80%. So what is the difference between the 2?
So the rest are the designs that are shown, they are developed by our vendors. So they give us a presentation, and then we order it in our private level in our in-house brand.
Okay. Got it. Then if you can have -- if you can just share your thought on our bridge, like you said, INR 1,400 square feet monthly sales versus, I think, INR 1,081 is the average company. So if you can just share the bridge, as you said, in 5 years, we should go to like 2x that? So can you just share some broad thinking if you've not already shared?
So first target as a company for us is to reach INR 1,000 per square feet of sales annual yearly. So that is the target for this year. Then the next target will be INR 1200, then the next target will be INR 1500. So the time line, again, will depend how good we are and how good are we to actually execute our vision, because the vision is there. Now it's all about execution.
Got it. And the new stores are starting in the same few months as they mature, how long they take? And how -- what sales per square feet to this start at?
The new stores typically start at a 20% lower PSF than old stores, and it takes about 12 to 24 months for any new store to mature.
[Operator Instructions] Next question is from the line of Ankush Agrawal from Surge Capital.
So the question is relating to similar to what the last part that [indiscernible] was asking. So you said the new stores start at 20% lower sales per square feet and then they mature over 22, 24 months, right?
Yes.
And once that happens, typically, what kind of growth is there, like historically, what has been the growth? Because my understanding of the value retailing as a format is that initial 1, 2 years of growth is there, then there's a lot of, say, a sign of saturation that reaches a particular store versus some of the other retailing categories when the store starts very low and then scales up over, say, a couple of years.
I'm sorry, I did not understand the question because the 37% SSG that we have shown, it has all the old stores as well as the new stores, the stores that had opened until March of 2023.
Yes, obviously, I mean, currently, the kind of tax rating is repeatable, generally, at a value retaining at industry level, I'm trying to understand the journey of first store, like what we said makes sense that initially, I think in 1, 1.5 years, you are typically reaching it at a steady state mature level. But beyond that 1.5 years, what's the growth part for a typical store -- is it like do you still get 10% SSG or it's like 5%?
So if you look at the consolidated number, yes, it will be around 10%. That is what we're targeting. But if you take out samples and of course, there are some stores that do 25%, whereas some stores really do 2% to 3%. So those outliers are always there. But I think there is no, I would say, directional change, there's no change in the trend of a new store versus an old store in terms of growth, because once the store matures, it acts pretty much like an old store.
The next question is from the line of Madhav Agarwal from SG Investments.
Could you give a breakup of sales in physical stores versus e-commerce? And what do you see that going forward?
Yes, we currently do not have any e-commerce and 100% of the sales are from offline stores.
Okay. And do you plan to enter into e-commerce or online?
Yes, we are evaluating the omnichannel model where we use the store inventory, and we'll use all the stores as a warehouse and deliver to the same city, because that saves a lot on the return on the logistic cost. So we are evaluating that, and we are working on it. So we will comment on it, I think, in the next quarter.
The next question is from the line of [ Abhishek ] of ABS Capital.
Just 2 questions I wanted to ask. One, you are telling that from now [indiscernible] you are more towards contract manufacturing. So that will reduce cost, right? Is that the reason why you're doing that?
No. We have our own manufacturing units where we save about 10% to 15% on cost, but we are passing that on to the consumer. Because all the other goods are done in contract manufacturing only.
No. [indiscernible], we will increase the contract manufacturing and reduce your own manufacturing. So will it help in margin?
No, it will be a very similar cost. There will be no change in cost because our manufacturing capacity is constant and now we are increasing sales. So the contribution of manufacturing will keep going down as we are growing. That's what I said.
Yes, just one last question, like your growth is very nice. So I just wanted to learn like how we are competing with the online competition? Like are your customers different from the ones, who are being online shopping if you are supplying to those people who are like ones [ that are ] below, is it that -- is my understanding correct?
So you need to understand the economics of online retailing. In online, if you're selling at the ASPs that we want to sell at that we are selling at, that is around INR 250, INR 260, then you need a markup of more than 150%. So suppose you have a product for INR 150, you have to sell online for more than INR 350 to actually make any money on it because of additional logistic costs, return cost, COD cost, RTO costs. So there are a lot of costs associated with online retailing that doesn't allow people to sell of such low ASP products.
That is why internationally also Primark doesn't sell online and a lot of value retailers don't sell online, because it's not economically feasible. So we don't -- I wouldn't say that we are in direct competition with any of the online retailers, because most of the products that you're getting at this price is usually 2 or 3 seasons old for brands or it's a much, much lower value product than what we sell in our stores.
The next question is from the line of Tushar Sarda from Athena Investments.
Congratulations on super set of numbers. I have 2 questions. One is, I wanted to know your seasonal distribution of sales. And second, you mentioned that some stores are doing much higher sales. So if you can provide some idea what are your highest selling stores? And how many have percentage of your total number of growth, what would that be?
Can you repeat your first question, please?
Seasonal distribution of sales, how much we do in Q1 to Q2, Q3, Q4?
So because of the Hindu calendar, the festivals keep on changing, the days keep on changing. So it's very variable. So Durga Puja happens later than the percentage of sales in quarter 3 increases. There's a lot of disturbance from your line. So talking about the contribution, it varies according to the wind calendar festivals, but the higher sales are in quarter 3, then second is quarter 2, then -- sorry, then quarter 1, then the lower sales are usually in quarter 4. So that is how the seasonality is impacted. And what was your second question?
I wanted to know your first quarter sales. You mentioned that some stores see very high sales. So what is the highest that we do in terms of -- for a full year or full last year? What is the highest per square feet sales average?And how many stores would cross the benchmark of INR 1,500?
I'll have to check the exact number, and we don't share the exact number, but we do have a few stores that do annually more than INR 15,00 per square feet sale.
The next question is from the line of [ Khadija Mantri, Capri Global ].
My question is on the competitive intensity. So Reliance has also launched its affordable clothing brand. So do we compete with them or the [indiscernible] price is much higher than that those types of stores?
I haven't personally visited, I think it's called youth stock, but I think it's in a similar price range of Zudio, which is higher than us. But like I said, the market is big enough to actually accommodate multiple retailers. So this is not a cause of concern, because more and more people will enter this because this is such an attractive space. So we are focusing on making ourselves strong enough that we don't have to worry about competition.
Okay. Sir, but Reliance is known to be a little aggressive when it comes to pricing or structuring the market share. So what are your thoughts on that?
So I would say like even Zudio open 200 stores last year. And they have opened a lot of stores in the same area where we are present, but we haven't seen any sort of impact in sales. So even if Reliance is being aggressive, I think our growth expansion strategy is also pretty aggressive. So if we focus on doing the things that we've been doing right, then again, like we're focusing on ourselves.
[Operator Instructions] The next question is from the line of [ Prathamesh Tiwar ] from [ Tiger Assets ].
Yes. So just if I missed it earlier, a couple of questions. As you plan to open 50 to 60 stores, so how much investment is going to be there to open 60 stores? And my second question is, if we open a store, let's say today. So how much time it will take to reach the revenue per square feet of INR 1,000?
Okay. So answering your first question, we plan to open 40 to 50 stores and the investment required for that is around INR 110 crores, which we will be completely financed through internal accruals.
And second question, when a new store opens, how much time it takes for it to reach INR 1,000. So again, it completely depends on the company base. If you spoke to me last year, I would have said the store will take 2 to 3 years. If you talk to me this year, I will tell you that it's 1 to 2 years. And maybe next year, if we continue this growth then the new stores from the first month itself are doing INR 1,000 per square feet. So it depends on the company base because it's like 15% to 20% lower than the company average.
Okay. And just last question. I think you said we are expecting 30% to 40% revenue growth and around 4.5% of PAT margins for FY '25. If I'm not wrong?
Yes.
The next question is from the line of [ Prerna Amanna ] from [ PNA RF Partnership ].
Congratulations on a good set of numbers. I have 2 questions. So first of all, when it comes to manufacturing, what percentage are you getting manufactured in home? And how much are you giving it for like a third-party manufacturer?
So 16% of our sales are manufactured in house and 84% is outsourced.
Yes. And this will reduce as your scale of operations increase, right?
Yes.
Yes. And the last one is, I think in your beginning comments, you told that 80% right now, obviously, is to your proprietary brands. So are you telling that the rest 20% that is where you're selling are people's brand in your stores?
Yes.
The next question is from the line of [ Virendra Bajaj ], Individual Investor.
Congratulations on the strong results. I just had a few questions. What sort of inventory turnover in times are we looking at for this year and the next year?
So the target inventory number is 90 to 100 days that we're looking at. And going forward, we would like to reduce it to 80 to 90 days.
Okay. And you said that you have increased private label sales quite a bit. So what sort of extra margin on getting the private label sales versus the third-party banks is?
So we do not get any extra margins, because that is our strategy, whatever benefit in cost we get, we pass it on to or consumers.
And so if I can just understand what sort of revenue per square feet and from new stores like that we opened in the current year or within less than 1 year?
We don't share those exact numbers.
Okay. All right. Also another question I had is looking at pre-Ind AS consol numbers have reduced your OpEx [indiscernible] to almost 3% of revenue. So just to understand how that was changed by the company?
What have you reduced?
The other expenses, other expenses in the pre-Ind AS consol number for this quarter, your other expenses have gone down almost 3% of sales.
So that's because the sales have gone up. Like I said, it's a fixed cost business. The rent is always going to INR 54 per square feet, even on INR 800 per square feet of sale and even on INR 1,054 square feet of sales. So if you look at it, the per square feet of sale have rose almost 33%. So of course, cost as a percentage will come down.
Okay. And while we expand most of the current geographies, are we planning to like open more in like cities or more in the smaller towns?
So like the kind of customers that we cater to, they are present across tiers. We have around 3 stores in Delhi also, and they are also doing reasonably well. So we are targeting Tier 1, Tier 2, Tier 3. Wherever we get a good enough sight where we think we can achieve those sales at our cost.
And sir, just one last question. What is the sort of payback period that we have for our new stores that we're opening now?
It should be around, I think, 3 years.
Payback period?
Yes.
The next question is from the line of Naveen Baid from Nuvama Asset Management.
If I look at your numbers historically, your depreciation used to be about 1% to 1.5% of your top line. Now if you strip off the depreciation on ROU assets, is the depreciation going to be around similar lines? Which is 1 to 1 type...
Yes, yes. It's going to continue to be that in pre-Ind AS numbers.
Ladies and gentlemen, due to time constraint, the next question will be the last question. The next question is from the line of [ Manoj ] from [ Kiva ].
If you can share some details on Zudio. As you said, Zudio has opened a store near you. If you can share how near and in case of any resource that why has that impact not happening? I think you said that ASP is much higher than ours, but as you said that T-shirts start at a lower price. If you can just share more color, so we will not be as some -- if we think address that concern that it's a totally different market. If you can share that? And also the INR 54 would have an escalation clause of 5% a year?
The average was 5%. And there are some Zudio's within 1 kilometer radius, there are some within 5-kilometer radius, and we do some sort of benchmarking in terms of competitors for all our stores. But what we have found out is our kidswear contributes almost 26% of sales. So we have a lot of family customers coming into the stores. Whereas Zudio's kidswear is almost nonexistent. So I think one big reason is that.
And the second reason is, like I said, it's a completely different target customer with very little overlap. That is why I think we haven't seen much impact on our sales in those particular stores.
And that low overlap is because of the product fashion trend or the price point of both?
I would say, price points. Because even in our stores, if we -- usually when we study the parking space, it's usually 2-wheelers. And we don't have a lot of 4-wheeler owners as customers whereas I would say like if we visit Zudio, it has a lot of 4-wheeler owners also. So there's a change in the target customer.
Sir, if we look at the -- just reading the numbers you're sharing kind of the ROE is coming much higher than 20%, 22% is probably inching to -- in the 30s, also the payback period is not looking like 3 years if you just look at what we have. Is that okay? [indiscernible]?
We like to under promise and over deliver. So we are happy with the 20% ROE also like if we get more than that, then good enough, but the guidance that we gave going forward, like even if you're getting an ROE of 20% to 22%, we are happy with those numbers.
Right. And you said something INR 110 crores for CapEx of -- what is that number, something?
So that INR 110 crores is total investment. Out of that, the CapEx would be about INR 40 crores to INR 50 crores and the rest would be for inventory, working capital.
So I guess INR 110 crores will be spent over the next 3 years?
Over the next 9 months?
I would now like to pass the conference over to Mr. Akash Agarwal for closing comments.
Thank you, everyone, for joining on the call. We hope we have been able to answer your queries. For any further information, we request you to get in touch with Marathon Capital, our Investor Relations advisers. Thank you, and have a nice day.
On behalf of V2 Retail Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.