V-mart Retail Ltd

NSE:VMART

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the V-Mart 1Q FY '23 Earnings Conference Call hosted by Spark Capital Advisors India Private Limited. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Tejash Shah from Spark Capital. Thank you, and over to you, sir.

[Tejash Shah, analyst]

Yes. Thank you, Vikram. Good afternoon, everyone. On behalf of Spark Capital, we welcome you to Q1 FY '23 Earnings Conference Call of V-Mart Retail Limited. On the call, we have with us Mr. Lalit Agarwal, Managing Director; and Mr. Anand Agarwal, CFO of the company.

Let me hand over the floor to Mr. Lalit Agarwal for his opening remarks. Thank you, and over to you, Lalit Ji.

[Lalit Agarwal, executive]

Good afternoon, everyone, rather good evening, and welcome to the conference call. Once again, very, very happy and have gratitude towards all our investors and analysts who are on this call.

The business continues to becoming better and better from the past -- last 2 years. We have been seeing every quarter improving on the -- from the COVID comeback perspective. And we are definitely seeing a lot of dynamism in the market. A lot of activity, lot of buzz are moving around.

Most of the parts in the businesses and the industry, or the consumption and the consumer mindset, or the economic trends and the commodity prices, they have been very, very volatile in the -- in nature, and they have been definitely -- there's been too much of unrest in the market. As always, we have also been very, very watchful in this particular environment.

Largely, the news is positive from a long-term perspective. We are able to see a lot of good things happening in the market -- in the consumer space, country as a whole. The government, which is taking to bring up the per capita of Indian consumers. There are a lot of efforts which are visible on the ground.

There are good signs available from the government perspective, which is largely from the state government perspective and the central government perspective in terms of working towards improvement of job market and the employment segment, which, is evidently very, very clear, which gives a very good clear perspective that India is becoming stronger and definitely Indians will become stronger.

This is a great opportunity for India, especially from Bharat as this government is working to strengthen and stronger -- make the smaller town and the smaller regions very, very strong and putting a lot of investments in infrastructure. So we expect a very, very -- fundamentally good growth in the basic consumption spree of our consumer base.

In the overall industry, definitely, there has been a swing in the consumption sector, and we have almost, in the entire quarter also until now, we have noticed a little deflation or I would call, not a deflation, but a trend of consumption, which is not great on the rural side. There are -- so as I discussed even in our last call, I think that this is a [ K Graph ] philosophy, which is working, where the richer is becoming more richer and the poorer is becoming more poorer. And this is what we are able to very, very clearly visualize.

On the professional side, on the entrepreneur -- bigger retailer, bigger, what I would call, the traders or the manufacturers or the companies. I think most of them are becoming bigger. The professionals and the salary classes, they are also gaining on their salary. They are also improving on that side.

So largely bigger cities, bigger towns, are -- and SEC A class is gradually doing better, are doing much better in terms of both their earnings as well as their potentiality to spend versus the B and the C class of consumers who are -- who lives in smaller town are definitely having to face the inflationary trend and the impact of the inflation, a little more higher because their -- most of their earning goes into food and the food bills.

And food has seen a very large inflation, almost to the tune of 30%, which is what they have experienced -- they are experiencing, which is eating away most of their savings and most of their budgets. So largely in smaller town with SEC B and C consumer, which is people earning between INR 15,000 to INR 40,000, they have -- they are finding it a little more struggling or they are finding it difficult to cope up with their budgets.

And we spoke with multiple customers, we've got multiple surveys in trying to understand this. So there is a pain in that particular household. And lot of such households are not able to come out to shop or have decided not to shop in these times or have reduced their consumption. And that is how we are seeing consumption getting little affected across the geo -- across the belt in most of the consumption sectors and we've seen multiple reports coming in right from the two-wheelers to tractor sales to FMCG companies. And I think that, that is very clearly being seen in the hinterland.

And on the other side, we have once again seen good sustainable growth coming in till the June month, from the upper segment, which is a premium segment customer base, that continues.

And on the industry side, I think most of the retailers are coming back. Most of the premium retailers are coming back and have done, I think, good even in the last quarter and even now. Most of the value retailers, we think are, I would call, not doing as great as they would have done, both, one, from the perspective of inflationary trend, which is eating away into the consumer's basket as well as from the perspective of the price size that they have taken up in their product lines.

And third is also because there is a higher intensity of competition in the value space from the nationalized retailers. If we compare it from the prepandemic level and the pre-COVID levels, the number of stores and the number of stores that each retailer had, plus the number of stores that their competitor had, cumulatively, have almost doubled or in certain towns have tripled in the last 3 years. So that's the competitive space horizon.

I think there is definitely a lot of customer swing, which is happening towards the organized segment. A lot of customers are moving because so many retailers are coming into this market. And there are a lot of movement, which is being noticed from the unorganized to the organized as well as a little bit into the online, which has happened. And that is very clearly visible.

So I think the market has not grown so much. It is definitely trying to grow a little more. But because of the higher penetration of organized retail, I think it is getting spread over.

At V-Mart, we have definitely focused more on improving and we are continuing to focus more on improving our network effect, improving our vendor management. We did a great program only in the last week, calling up almost 1,000 vendors in a single hall, trying to talk to them, had a lot of communication, a lot of understanding how do we grow, how do we make them grow.

So a lot of work is happening on their improvement, their development and trying to create a scalable vendor base so that we have a continuity of scaled up and a better efficient business operation in the future. We also had a great program called [ Sangam ] with our store managers and our team also 10 days back. And then also we created a lot of enthusiasm and boosted their motivation.

So overall, we are working on larger pieces, trying to strengthen our teams, trying to strengthen our community, trying to strengthen our vendor base and then trying to strengthen our processes. As we said last year also -- last call also, that they have been a consultant who is working towards strengthening certain processes of sourcing, procurement, designing, supply chain, forecasting retail operations.

So we are working on all those areas to try and relook at the entire operation, relook at from the scalable lenses so that we look at 3x of the business in the next 5 years so that we could actually grow to that level.

So we are definitely strengthening ourselves on those areas, definitely having focus on the here and now situation and how do we do our business in here and now with the mindset that we don't want to just pull sale. We just don't want to pull sales on certain discounts and schemes. We have definitely hold on -- held on to our process of being an honest retailer and not going out and spending a lot of money to acquire customers, not going all out and spending too much of margin to acquire a customer.

So we have learned our mistakes in 2019. So we are trying to make up on those. We have definitely held back on our discounts. We certainly realized one more mistake that we have done. We had completely passed on the commodity price rise to our consumers, which the consumers did not take very supportively and we got a negative impact in the month of May and June.

So we have -- we are trying to reverse those prices back to a certain extent so that we are able to attract our consumers and not impact their pocket during these bad times and during the worst times when they are also reeling under this inflationary pressure.

So we are trying to make up to all of those. We had vacated certain price points. We're trying to come back to those price points as well. So there are a few things that we realized during this last quarter, which we also think we had made a mistake and we want to come back on those.

And we will try to create some innovative solutions so that we are able to offer them newer products at the lower price point, maybe doing innovation on fabric development or bringing up some blended fabric, which can give better results to the consumer, keeping the experience intact.

So that's where we are. We definitely are adding a lot of stores. We have seen a very good impact coming in from our Southern India acquisition. Our Unlimited has been out of the rest of India business. Unlimited has also performed very well. They have been able to control their degrowth or they have been able to even have growth in certain stores, and they are doing better than what we had expected. They are beating our targets.

And I think there's a lot of potential in that particular market. We also experimented with opening of another 6 new stores in that market with the same name, and which is also giving us a better result compared to what openings that we did in the rest of the year.

So what we believe and we understand and the confidence that we have in the Southern India market is very high. The Southern India market is much more matured and most of the districts are much more prepared to launch the store and can get more appreciated by those consumer base for our kind of version. So we will be a little more gung-ho about that.

Apart from that, our East India market also seems to be improving well. We have taken a little bigger bet in that particular market. That team also have strengthened a lot. So that there also, we will -- we recently finalized a little bigger store in the core of Kolkata. And we are trying to now take up that market also very seriously, so that we gain our market share even there. So overall, on these 2 regions where we are a little weaker, we are trying to strengthen up and become more stronger.

Apart from that, digital continues to be our focus area. We still believe there is a lot to be done. Our launch on Myntra has given us a good response and Myntra is turning out -- and Myntra customers are also appreciating the products of V-Mart, and we are seeing good orders coming in from those marketplaces also, which gives us a very good hope and which gives us a larger sense of opportunity even in the online space.

And there, we believe that in the next 2, 3 years, we definitely need to strengthen our team and acquire certain technological capabilities and certain online capability so that we are able to actually leverage this potential, which is available in our hands. And that is what we are focusing on. We are trying to put a lot of our mind share on to that area in improving our technology stack, in improving our digital understanding, in improving our potential on the change management side from our internal team members so that we are able to honor all these opportunities, which is available to us.

The business in the last quarter was not too great. if I compare from the prepandemic level. But definitely, I think we were able to manage our expenses, we were able to manage our profitability. And we have been -- fundamentally, we have been managed to -- control our inventory and also liquidate some of those old inventory -- operating at a fresher inventory range, keeping our brand imagery very, very strong.

Further improving on our brand imagery, that was our major focus. I think Anand will take up -- take you through to the -- with the details of the business that happened in the last quarter and then we can take up your question and answer. Over to you, Anand.

[Anand Agarwal, executive]

Thank you, Lalit, and good evening, everybody. I think as Lalit mentioned, this is the first COVID-free quarter in the last 2 years with almost full normalized operations, although there were small minimal disturbances due to the Agniveer protest in some parts of UP and Bihar for a few weeks.

And definitely, inflationary pressures played their big role impacting footfalls and consumption spending in almost all geographies. Inflationary pressures actually played a very important role keeping consumption under check in rural and semi-urban areas, although with bigger cities, Tier 1 towns and stores and mall space significantly better throughout the quarter.

After a near normal Holi and strong start to April, May and June remains subdued versus pre-COVID levels as Lalit also mentioned. Actually, with rural job growth slowing down and no real increase in rural income levels, the footfalls in almost all parts of rural and semi-urban areas remain under pressure, again versus pre-COVID levels.

While -- on the sales front versus last year, the sales grew by 233%, with a 20% contribution coming in from new South zone, which continue to outperform with sustained profitability. But if I compare to pre-COVID levels, the footfalls actually were down from FY '20 by almost 20%. And a similar degrowth, we could also see in sort of volumes as well.

Bihar faced the maximum brunt of the challenges because of the sustained Agniveer like disturbances in the state for a very long period and also the impact of significantly delayed monsoons leading to overall economic uncertainty and consequently, a dip in consumer spending, particularly in that region.

Relatively, South India, as a result of pushing in the finer price V-mart inventory, better systems process and also the enthusiasm shown by the South India's team and also the better mix of Tier 1 towns and also stores in malls, I think the South India business performed much better than our expectations and also came out even better on profitability.

While the South zone ASPs grew only by 11%, but I think at a country level for V-Mart, the ASP grew by almost 20%.

The -- coming on the margin side, I think it has also been a very good quarter. Definitely better yields coming in from price increase taken to absorb the cotton yarn price impact, which actually was taken in anticipation more because the cotton prices continue to climb up. But in the last couple of months, we are also seeing some correction there happening, and it's becoming very difficult to manage or hedge the position as far as the forward supply booking is concerned.

So -- but as Lalit mentioned, we are definitely planning to correct some of the mistakes that we had done earlier on the entry price points, and we will now be far better prepared as we get into the fresh new season to target the rural customers with very attractive price points that we might have always been known about.

Also, the margins were better because we also did lower discounting than previous years. The inventory health actually has been very good while the inventory days look slightly higher, but that's in anticipation of the upcoming season. But from a health perspective, this has been one of the best quarters, or it will actually remain the best years where we will have very good quality of inventory because in the last 2 years, we bought very less, and we were able to sell through very strongly.

In fact, South margins coming to South also, South margins are slightly higher. We've always maintained that because the operating costs there are much higher. The gross margins there also look much higher and that reflects in the overall margin growth. Keeping in 20% mix from South, which will be at least 5% higher gross margins. I think future margins should also ease back to [ 34% ] as we have now started passing on better pricing to consumers from new season launch.

On the expenses side, all costs have had inflationary headwinds, but still remain under control. Rentals from V-Mart side remained at the historical INR 35 to INR 36 per square feet while for the legacy Unlimited stores, they average at around INR 75 per square feet, taking the company average to INR 45.

Good part to note was that all the 4 stores that we opened in the quarter and also 2 new stores that we opened in this month in the South zone are at the company -- the V-Mart average of INR 30, INR 35 per square feet. And while these new stores are under the Unlimited brand, they have started to deliver at a very healthy [ INR 700 ] plus sales per square feet, which is 20% to 30% higher than the legacy Unlimited average sales per square feet. And that gives us a lot of confidence. In fact, the team is very gung-ho on a much bigger opportunity that one can leverage from South India.

Again, on the expense side because there were no further COVID-related rental concessions and not just on rent, but otherwise, actually, all expenses are now back to pre-COVID level. Manpower costs remain under pressure, although, again, at a per square feet level, they came down a bit. Actually, while all costs went up on an absolute and also on a percentage to sales basis, but except for rent, all costs remain lower than pre-COVID over levels on a per square feet basis, reflecting the efficiency and the kind of discipline that the team has been able to maintain throughout.

As a result of the sales increase and the better gross margins, lower discounting and in line expenses, the EBITDA increased to 15.1% versus 12.8% in pre-COVID period. And that -- while we are still not very happy with the like-to-like sales still, at a minus [ 20% ] level from pre-COVID. But from a profitability perspective, I think we are quite satisfied with what we have achieved.

Going forward, as the corrections that we put in on the product side, we are very gung-ho that we should look at even better performance going ahead.

Coming on to the balance sheet side. Inventory remains under control. As I mentioned, it is one of our freshest inventory ever. And in fact, the provisioning that we usually consistently paced for the last many, many years, has been one of its lowest level in this quarter.

South inventory definitely slightly -- we have deliberately put slightly higher amount of inventory in South India as we continue to experiment with a lot of new concepts, a lot of new categories and also a lot of new assortments to understand and aid the appetite of that new customer that we are not very well aware of but we've very good results.

We are also working on better pricing and also making sure that we translate a lot of learnings that we have taken from South back into rest of India regions in V-Mart business. And whatever we have taken so far gives us a lot of promise and hope that collectively, as a team, we can deliver much better results.

On the cash flow and CapEx side, we remain comfortable on cash. There is adequate amount of comfort there. We had already announced plans of opening 60 stores so far, and I think the team is definitely on track to overachieve that number. We -- I cannot comment on the total number of stores, but definitely, it will be 60 plus for the year.

For the warehouse, the new warehouse construction has already begun. And we should get handover of the first phase of the new warehouse somewhere towards the end of this financial year.

Online business continues to grow strong. We are finding new markets, both in terms of cities and also opportunities on newer marketplaces, which we will continue to leverage. We have got some good success on some of the platforms that Lalit also spoke about. And we are increasing our penetration in these marketplaces and specifically on Myntra by linking them to more and more number of stores. As of now, less than 10% of our stores are currently live, only less than 10% are currently live on Myntra platform. And that itself gives us a lot of hope and opportunity that we can build this business much bigger and stronger.

On the Unlimited side, as Lalit was just talking about, I think we are very happy with the progress so far. The integration has definitely worked out extremely well. Both, we are seeing -- we are witnessing good amount of growth. We are seeing a good amount of profitability. In fact, the business is moving ahead of our expectations and our plans.

And again, it has not yet completed 1 full year of operations, but we will start sharing more data around that business as we tend to complete 1 year after the next quarter. But definitely very happy with what we have been able to achieve there.

On the outlook, I think we still have some headwinds on the cost side. But overall, the business looks very promising. There are inflationary pressures, and not only for us, but I think for all the value retailers and even related industries that operate in the rural or semi-urban segment. But from a long-term perspective, we remain very invested in the business, and we are very optimistic on how things can go further from here.

So that's all from my side. And I request, Tejash now to open the house for questions. Thank you.

[Operator]

[Operator Instructions] We have a first question from the line of Percy Panthaki with IIFL.

[Percy Panthaki, analyst]

Just a question on your gross margin, what you have done this quarter. Is it sustainable at that level going ahead?

[Anand Agarwal, executive]

Definitely, I would not want to continue with this level of gross margins, as I mentioned. We had taken a slightly higher price increase and also done away with a lot of eco-level pricing, which we are not very comfortable with. We will come back to the honest pricing and the -- giving the full value benefit to the customer, and that is where we feel we should come back to around 32%, 33%, 34% level of margin going forward, gross margins.

[Percy Panthaki, analyst]

Okay. Understood. Understood. And on your sales per square feet, they are still about 25% to 28% below Q1 '20. So what is the kind of trajectory that you're seeing on the ground? I mean, how fast can we see this going back to pre-COVID levels adjusted for seasonality?

[Lalit Agarwal, executive]

See, Percy, definitely, as we have also reported that there is a dip in the -- and we are not able to get back the pre-COVID sales, and we are still degrowing. So there is a small impact and -- but that definitely is bettering because if we look at even the quarter, the way April, May behaved, June was a little better and then July is still more better. So the degrowth is getting arrested and we should be able to come back a little faster.

It also depends upon how does the monsoon come back, and how does the inflationary trend come back, and then what is the geopolitical situation in the world. So these are all feel-good factors, which will also affect the sales and which is resultant of the [indiscernible].

[Percy Panthaki, analyst]

Right. Do you think that one of the reasons why the sales has not come back fully is that your gross margins are sort of on the higher side, and that has sort of acted as some kind of dampener on the demand or something like that?

[Lalit Agarwal, executive]

I will not fully deny that, Percy. See, I mean, definitely, you could, as I told in my opening remarks, we could definitely buy some sales by investing on certain marketing and schemes and trying to drive on discounts, which we avoided this time. And then definitely, I also said that we've realized that we did some mistakes of increasing our prices, which we can revert back and which we have realized and we'll revert back. Some amount of sales must have got lost due to that.

[Percy Panthaki, analyst]

Right. And the sales per square feet on South India, what percentage is it below your organic business that is North and East? How much lower is the South India sales this quarter on a per square feet basis?

[Lalit Agarwal, executive]

So approximately, it was hovering around 20%. I think right now it is around 15% lower. It should be around that, and that's what it is.

[Percy Panthaki, analyst]

And do you expect over 4, 5 quarters that this gap will totally become zero? Or you still think that South India per square feet will still in the long term...

[Lalit Agarwal, executive]

Percy along with you we should -- should we definitely make this as an objective or not is the point. But provided we should not reduce the rest of India sales per square feet to meet it. We definitely want to increase both of it and try to meet it, not only that but also [ V-Mart's ].

[Percy Panthaki, analyst]

Surely. My last question is on the EBITDA margin front. See, as you said, gross margins are high and you would want to sort of reduce them to get more footfalls and conversions, et cetera. But at the same time, do you think you can strike a balance so that once your sales per square feet sort of restores on an annualized basis, do you think that you should be gunning for like a 10% EBITDA margin in FY '24, pre-Ind AS?

[Lalit Agarwal, executive]

And Percy see -- I mean [Foreign Language], why are you doubting it. I mean definitely, all our objectives and all our business plans should be made to meet all of that, and then that's what we have always been saying. But yes, at this situation in this inflationary environment, we should not eye for a double-digit EBITDA. But yes, I think somewhere between 8% to 9%, 9% around, we should be hovering and that is the objective that we should be looking at.

But this is not the right time. We will have the pain. We may have a little higher pain as well in this quarter. We don't know. Let's look for it. Let's [Foreign Language] which side the camel sits is what -- is important. So I think we should wait -- we will definitely put all our efforts to try and meet that.

[Operator]

We have next question from the line of Nihal Mahesh Jham with Edelweiss.

[Nihal Jham, analyst]

Sir, 3 questions from my side. Since the last few quarters, you have been alluding to the fact that there has been a significant weakness in rural and semi-urban markets. Just wanted to understand that what according to you will be a key driver for this reversing? There's obviously a lot of expectations being built on the monsoon and as the Kharif crop comes in that things should improve. But wanted to get a sense from you that what could drive a reversal in these sentiments as you see forward?

[Lalit Agarwal, executive]

It's a billion-dollar question, Nihal. I don't know who all can -- in the call can answer this particular question. But yes, I'll try my best. But ultimately, what I understand for these consumer segments who are largely our customer base, for them consistency or trust in the consistency of income is a very, very important piece followed by stability in their expenses and then their future expenses.

So I think right now, for here and now, right now, they are in a problem area, which can come up both from the way our GDP income grows and our industrial income starts growing the MSPs or the prices of the produce, which is there and then the produce, which is monsoon-related or the acreage of farming and stuff, where we see a small risk right now as we speak today because most of the large 4 states that we are operating in, which is Uttar Pradesh, Bihar, Jharkhand and West Bengal is reeling under a low monsoon right now. And there is a risk which is available, as of now, we see. But it may end up with a lower rainfall. So I think definitely that can become a driver, one.

Other than that, there is also -- the driver should also be a trusted future environment, which is definitely COVID has not come back, and it is not visible. The war get over or there is no further geopolitical stress, which is created. And once again, these markets picking on refresh air and stuff, at some point of that, that also impacts their feel-good factor. So I think most of those when it settles down, the market will come back.

[Nihal Jham, analyst]

That is helpful, sir. The reason of asking this to you is twofold. One is in a lot of your points that you're alluding to see more structural in terms of the fact that we're speaking of job losses and a lot of others. And secondly, you mentioned you've been speaking to a lot of the customers. So when you -- from the feedback you get, is it that in anyways do you believe even when you historically seen that say a good monsoon is something that can reverse this immediately? Or as you pointed that this will be more of a gradual improvement that will happen rather than seeing all the demand come back in Q3 to just ask you that specific way?

[Lalit Agarwal, executive]

[Indiscernible] Nihal, Thank you.

[Nihal Jham, analyst]

Fair enough. Sir, the other question was that if I understand right, are you alluding to the fact that we'll be looking at sharper pricing in the coming quarters and you'll be reversing the price hikes you've taken, but you won't want to discount that is the thought process going forward? Did I understand that right?

[Anand Agarwal, executive]

Nihal, for us sharper pricing always is better pricing. We have never resorted to discounting or promotions in a very big way. In fact, throughout our history, almost 80% of the products that we sell has always been at full price. And that is something that we've always -- that is a promise that has been to the customer. So we are looking at sharper price points. In fact, not just sharper price points. We had inadvertently vacated a few entry-level price points, which we will now come back to.

[Nihal Jham, analyst]

That is helpful. I have a few more questions. I'll come back in the queue to ask them.

[Operator]

We have next question from the line of Jignesh Kamani with GMO.

[Jignesh Kamani, analyst]

Just 2 questions. So if you think about our 3-year CAGR from -- compared to 1Q FY '22, our revenue per square foot has declined by around 9% CAGR. But if you compare with other large format, does not happen to like Shoppers Shop or Pantaloons, they are either flat or positive 2 percentage. Just want to know what was the reason? Are we losing market share to the competitor or everything? Because if connect the dots our convergence remained pretty healthy, but footfall per store has declined 50%.

[Lalit Agarwal, executive]

Yes. Jignesh, think this is what I told, I mean, the way -- what I feel -- what we feel here and definitely, there could be multiple other reasons. So the 2, 3 factors that I said in my opening remarks; one, the inflation, inflation on their pocket -- on their budget. Two, inflation on our product, which made it right now. The decisions are -- decisions to come into the store and buy a family -- certain families have actually taken -- decided not to go right now, avoid buying or maybe not buy this year. So that's how the lot of such lower income group people have taken those calls is what we feel. Plus definitely, some of the customers could have also got absorbed with the competitive intensity, which has grown up. That could be another reason.

We don't know what we don't know. So we can't -- we can't just say no to it because there are stores which have come up, which are -- because the market is populated with more organized retail stores, we believe some transition must also have happened.

[Jignesh Kamani, analyst]

Second question is more near-term [indiscernible]. If you take out key market like U.P. -- our top 3 market U.P., Bihar, Jharkhand there's one of the worst rainfall, like U.P. has rain deficit -- like UP has almost 40% rain deficit, Bihar has 35%, and Jharkhand has almost 50%. Do you think it will impact the entire you can say disposal income from these 3 markets, which is almost 50% of our store count?

[Lalit Agarwal, executive]

So Jignesh, definitely, it is not a good news. But in the past, what we have seen is one, monsoon impact does not create a large impact on the consumption base. In the past, we had this consecutive monsoon, bad monsoon, 2 years. And when the second year bad monsoon happened, then only we saw a higher impact of consumption. In the first year of monsoon going down, there was an impact, but not a large impact.

[Operator]

We have next question from the line of Shirish Pardeshi with Centrum Broking.

[Shirish Pardeshi, analyst]

Just 2, 3 questions, Lalit Ji. I think you have given a picture where the things are not in shape and size and you're saying that the rural consumption is falling. However, over, say, 10 years, we have always been very, very positive in terms of the lower pop strata and giving them the basic style and the product at the right price. You did mention that there is a heightened activity, which you have seen because of the inflation and other things. But just tell us that this income strata you have seen over many years, so what is it that we have done not right in this time? Because you -- 2, 3x you mentioned that we have taken a wrong decision.

[Lalit Agarwal, executive]

Yes. Shirish, I think you're right. And I would not say that the shape and size is bad. The shape and size is perfect, but the situation right now is a little mobile and dynamic where the customer is also confused. And there is a stress on his pocket, which you have to understand because in the -- if you look at a normal consumer who is a blue-collar consumer, earning INR 20,000 a month, for him, in the last 2.5 years, he has lost almost 6 months of his income, whether he was a self-employed guy or he was a person working under a self-employed. There, he has not got the salary or got a reduced salary.

So there is an impact which has happened in the past 6 -- 2.5 years, that is they are reeling under. Then followed by that is the inflationary pressure that they have.

So there is a pressure on his pocket on the household. You have to understand their budget. You have to just go down to their budget and see what is that he used to spend, where and how does it impact them. So that is what I was indicating. But yes, definitely, this market from a fundamental point of view is the best market, is supposed to grow definitely in the longer and midterm, but this is only at a shorter term, I'm demonstrating this.

Plus what we did is what I accepted saying that we passed on both the inflationary trend as well as the GST price rise, which was going to come, the tax rate, which was going to come in. We also anticipated the tax to come in, and we also passed on that tax right now to the customer. But that is definitely our awareness and our realization.

And now we are reversing those so that we get back those customers and support the customer in this inflationary trend to manage their household -- household income.

[Shirish Pardeshi, analyst]

Okay. That's helpful. Second question on when I look the Unlimited piece. From the quarter 4, if I look at, we were at INR 73 crore. In quarter 1, we have moved INR 218 crore. So 60% jump in the revenue. So what is it that which is going right? Or is it because of that, our efficiency and the motivation and the programs, what you have done for the employees of Unlimited, is that the impact or really there is a growth in the footfall and the market is really growing at that point -- price point?

[Anand Agarwal, executive]

Shirish, it is not one single aspect. I think it's a culmination of multiple things, starting from the people itself. Second is the way we have integrated the entire process. We have done the entire merchandising revamp, the assortment revamp and also taken significantly higher bets on populating that part of the country with much higher inventory because we also wanted to experiment and understand what more can we do there?

And even today, we continue to experiment and we continue to explore newer markets with newer inventory to understand what more can be achieved. And we still feel that the glass is still half full. We have still a lot of way to go there. It's not just that we have to match that region's performance to V-Mart level. I think if the opportunity is bigger, we may just want to look at even a much larger opportunity than what we are currently at.

[Shirish Pardeshi, analyst]

Anand Ji, I got what you're saying. But when I look back when we acquired exactly a year before, in the September month, a year before, we did almost about INR 15-odd crore and that run rate has moved to maybe INR 27 crore, INR 28 crore per month in the second half last year. Right now, the average comes out around INR 40 crore. So is that the right number you look at on the core business we will be able to achieve? I mean what I'm trying to say that this performance is happening and it is good. But what can go further? I mean, of course, you have been guiding that you will add stores and other things.

[Anand Agarwal, executive]

Shirish, there is no magic here. So one is there is a seasonal impact. [Foreign Language] there was a particular business cycle, which was happening there. There was also a seasonal cycle in terms of what is the kind of product that was available there. What was the inventory size there and therefore, their ability to do x amount of sales was also constrained by their historical performance.

Given the fact that they have -- that region now has access to a much larger pool of inventory, much more focused efforts on making sure that, that business has to do well, therefore, we also for ourselves, we've not set up that we have to achieve only INR 600 or INR 800 per square foot. We are still trying to understand to your -- as you asked, what is the level up to which we can go. We also don't know what level we can go up to, but we are trying and we are trying to make it work even better.

[Shirish Pardeshi, analyst]

Anand Ji, what I was trying to understand what you mentioned that there is a pricing correction which we're going to take our core business, which V-Mart is the same issue you are seeing in the Western and Southern market under Unlimited franchise?

[Anand Agarwal, executive]

No, not as much. Actually, the Southern India market has 2 distinct differences. One is it is largely more in Tier 1 and Tier 2 towns. And second is that it also has a good representation in mall stores. And we are very clearly seeing a K-graph kind of a recovery where the bigger towns, even in the V-Mart segment in North India and East India, we are seeing bigger towns performing significantly better than Tier 2, Tier 3 towns. And same thing we are seeing in South India as well.

So the mall stores are doing much better than other stores, the Tier 1 towns are doing much better than Tier 2 towns. Tier 2 towns are doing much better than Tier 3 towns. And their ability -- the income levels there also are slightly better, and the inflation impact also is less evident, at least in that geography.

[Shirish Pardeshi, analyst]

Okay. That's really helpful. My last question on the consultant. So if you can elaborate something more that when did we appoint and by what time we will get the understanding and the work which the consultant is providing and maybe a road map how we are going to implement and when we can see the fruit of the consultants working with us.

And more to quantify, is there any quantifiable target maybe in terms of franchise or in terms of the cut in inventory or maybe some savings or something. So broadly, if you can specify 2, 3 parameters on which we are measuring?

[Lalit Agarwal, executive]

Shirish, you are asking too many things. But anyway, it will be a good information for the competitors as well. But -- so I don't want to really tell you everything which can happen. But yes, if I say some of the areas where we are working on, this project has already started almost about 6 months back -- 6 to 7 months back. And it is definitely going to continue another year.

There are targets of bettering the business -- primarily bettering the business, bettering the per square feet outcomes, both in terms of sales as well as the margins and bettering the -- or largely it is more about scaling up or trying to develop a scalable structure so that we are able to continuously keep that on and have a better perspective on product, better sourcing abilities on product, better margins from the products and lower inventory levels of the product. So I mean everything has to come up.

And primarily, it is the [indiscernible] is an outcome or the sales per square feet is an outcome of how much are we able to sell more, how much are we able to forecast better, how much are we able to allocate better and how much are we able to have a best product and best design at the best value. So it involves all these areas, including the retail operations.

[Operator]

We have next question from the line of Aliasgar Shakir with Motilal Oswal.

[Aliasgar Shakir, analyst]

Just one quick question. So we did speak about price correction that we would want to take. If you can just quantify what is approximate kind of price correction that we -- have you already taken it? And I mean, what is the kind of initial response that we are seeing?

[Anand Agarwal, executive]

Ali, we had taken a price increase of almost to the tune of 17% to 18% in the last 1 year. And it is not just a matter of price correction across the spectrum. But definitely, we are looking at correcting some of the more attractive price points and where the customer demand we are seeing has sort of dampened.

So some price points may see a price correction of 5% to 10%. Some may see slightly higher, and some may not see a change. But at an overall level, probably the correction might be in the range of 5%, 6%. [Foreign Language].

But having said that, there is also an external factor of cotton yarn prices, which continue to remain very, let's say, up and down. And therefore, if there is any significant change in the macro factors as far as the raw material supply is concerned, we may need to relook at the situation. But as of now, we are quite -- we are going ahead with some amount of correction in the price assortment bucket for the entry-level customer.

[Aliasgar Shakir, analyst]

Got it. And have you already taken it in our fresh inventory. I mean if you have any feedback from there?

[Anand Agarwal, executive]

Yes, we have already taken that. And while this is not the high -- the fresh inventory is just about to hit these stores or it is just about to hit the stores, but the full impact or the real impact of this will start getting visible from, let's say, 15th of August onwards?

[Aliasgar Shakir, analyst]

Understood. So basically, before the festive season, we will be having the updated product?

[Anand Agarwal, executive]

Yes.

[Operator]

We have next question from the line of Ekta Sanghvi with Vallum Capital.

[Ekta Sanghvi, analyst]

I just have 2 questions. Sir, firstly, so actually our other expenses as a percentage of revenue used to be in the range of 14% to 15% pre-COVID. And now it is higher and that could be because of Unlimited probably. So can we expect it to go back to those pre-COVID levels?

[Anand Agarwal, executive]

So Ekta, yes, you're absolutely right. There's a large impact, which is coming in from Unlimited, and it is not only in this quarter. If you look at the last quarter and the quarter before that as well, there was a marginal impact coming in from that. And the Unlimited OpEx structure is definitely, slightly, on the higher side. And while that business has a 20% revenue mix but on the expense side, it has a slightly disproportionate mix.

But having said that, as we continue to open more number of stores in South, which are all at, let's say, the V-Mart business model and the economic structure, this will get mitigated in the years to come. It will not happen overnight. It will not happen within this year, but it will take a couple of -- probably a couple of years before that averaging out phenomenon can happen.

The second part also to the same question, is that because the sales -- let's say, the same-store sales growth has been dismal as far as pre-COVID -- as compared to pre-COVID levels. The expenses as a percentage to overall revenue definitely looks slightly more optically higher. But otherwise, at a per square feet level, they still remain under control.

[Ekta Sanghvi, analyst]

Okay. And the second question is, sir, sir, in the last call, I think you guided that the CapEx for FY '23 would be around [ INR 16 crores ]. However, like according to our usual percentage of store addition of 15% of V-Mart and Unlimited, it seems like the CapEx required will be more than INR 100 crores based on your past average CapEx for stores. So could you explain this difference?

[Anand Agarwal, executive]

No, we've not said INR 100 crores anywhere. I think we have guided for a store number of store additions of around 60. And in today's call, we said it might be slightly more than 60 number of stores. The CapEx per store is usually around INR 1 crore to INR 1.2 crores per store, plus there is a working capital input of roughly around INR 60 lakhs to INR 80 lakhs. So therefore, the cash deployment for this new store expansion in totality should be around INR 100-odd crores, or maybe a bit more. Plus, there is a new warehouse, which is getting built. And on that and the CapEx spend in the entire year should be around INR 70 crores to INR 80 crores.

[Operator]

We have next question from the line of Gopal Nawandhar from SBI Life Insurance.

[Gopal Nawandhar, analyst]

Am I audible?

[Operator]

You are, sir.

[Gopal Nawandhar, analyst]

Sir, if you can just give some color on our digital sales and the profitability for that channel and what is the kind of contribution it has on the total sales?

[Anand Agarwal, executive]

Gopal. So digital, as of now, still contributes roughly around 2% to our revenue mix. But as I speak to you, we are continuously working on making it grow and we have made a lot of changes, and we continue to make a lot of changes to propagate that further.

As far as the profitability of that business is concerned, as of now, it is not a profit-making business, but there are early green shoots that we are able to see that as we scale and as we grow it further, it should come into black in the near future. But definitely, we are not looking at a significant profitability or the same level of profitability as the off-line business as we continue to invest in this part of the business, which is more from our future safeguard and to make sure that we remain relevant to our only customer, which can come through any channel.

[Lalit Agarwal, executive]

I want to add here, Gopal. This is also an issue where right now, we are on a business building stage, where definitely we are not the best or the best operating team technically, and we don't have the best efficiency available. We don't know the online customer grade. We don't know how to acquire the online customer grade, and to deliver them. So we are also in the process of learning, identifying areas of mistakes that we are doing. We are also not going very high because we know this is not our area of expertise. And the market is -- here is very expert and market definitely is working more on negative margins and trying to acquire more customers.

So there is a lot of learning, which has to happen here. There's a lot of capability addition, capability development, which needs to happen here before we can actually build a profitable business. The model that we have built is definitely a framework is very nicely for that. We are trying to gung-ho and work more on the omni retail side so that we are able to convert our existing customer towards the -- if their needs on online is there. So that's the overall approach that we're trying to take.

[Gopal Nawandhar, analyst]

And how many of your stores will be omni-enabled now?

[Lalit Agarwal, executive]

I mean right now, there are only around 90 stores, which are omni-enabled altogether, where some stores are listed only for online -- for our own online portal and some are listed for marketplaces. But we are trying to bring all stores in this particular network frame.

[Gopal Nawandhar, analyst]

Okay. Okay. And sir, when we say like June, July, when we are seeing business coming back. So is it like across regions, it is? Or the higher proportion of online is helping in terms of business coming back?

[Lalit Agarwal, executive]

I mean, definitely, right now, online contribution is very low, that we'll not be able to drive a lot of business come back. But, yes, largely, the business come back is from our market and still those markets, which has a -- and I'll just explain you a higher per capita income market is a better -- is giving us a better response. .

A lower per capita market still is struggling. Like, for example, a market in a small district in Bihar, maybe, for example, a district called maybe Darbhanga or a small district called [ Sheohar ] which is the lowest per capita district of the country. There, their struggling is a little more higher because there the impact on the consumer is a little more higher versus Lucknow, Patna or Bangalore or Delhi.

[Operator]

We have last question from the line of Ankit Kedia from Phillip Capital.

[Ankit Kedia, analyst]

Sir, couple of questions from my side. Just wanted to know the store opening strategy of Unlimited. Given that Tier 1, Tier 2 markets in South are doing better and a cluster-based store openings, are we opening the stores in the similar cities we are going from our Tier 2, Tier 3 cities because of unit economics with V-Mart, it makes more sense to open in Tier 3? So if you can just share some store opening, how are we doing in South?

[Lalit Agarwal, executive]

Yes. So I think our fundamental model is definitely focusing on our target segment and our target customer group. And those customers, we still believe and we definitely believe we are only for -- mostly for them. And then there are -- and there's a huge market and there a lot of such towns in Southern India, which is the strength of V-Mart where our model kind of -- model like V-Mart needs to exist and is not there. So we have a large opportunity to get into those markets. And all the new stores that we have opened up until now or that we are planning to open up are largely towards Tier 3 markets, and we will want to penetrate that market as soon as possible so that we get some first mover advantages as well.

[Ankit Kedia, analyst]

And sir, in the North, are you seeing demand being hit across categories because footfalls itself are not coming because like in womenswear, ethnic, we are slightly weaker. And if family is coming with price points are higher, probably the family is not walking in our store. So with the correction, are we also correcting the assortment where we are focusing more on womenswear products, which we were slightly weaker or that is for some time later?

[Lalit Agarwal, executive]

You're right. I mean definitely, we are working on all of that. And I think some of that working has also shown result in this quarter on that particular segment that you are speaking of, but we still have a long way to cover, and we definitely need to build a lot of capability.

One more information that I wanted to give have also changed our merchandising head -- our buying and sourcing head. And then the person who has come in has a better experience on women's ethnic. So we definitely want to drive that particular category and improve the sales on our women's share contribution.

[Operator]

Thank you. Ladies and gentlemen, that was the last question. I'd now like to hand the conference back over to the management for closing remarks. Over to you, sir.

[Lalit Agarwal, executive]

Thank you, everyone. Definitely, there were a lot of series of questions and there seems to be an anxiety over the growth and stuff. But believe me, and let me say once again, that this particular market seems to be very, very interesting, not only to us, but to the entire globe and the entire conglomerate and the entire retailers.

So all the retailers are trying to chase this market because there is a new juice and a lot of juice available in this market. So we definitely are the best one for this market, knowing this market and will want to capture this market more and more and retain our market share, not only retain but increase our market share. So we will do most of those.

There are challenges which are available, and we will want to fight it with a longer-term mindset, not with a shorter-term mindset. So you will always see us behaving in a little longer-term mindset and not just focusing on increasing the sales or increasing the profitability. But yes, definitely retaining the customer, But retaining the customers' trust, which is much more important than this.

And then with this call, I would want to thank all our team members, all our stakeholders and all our auditors and everyone who has helped us in this whole journey, and we will definitely want to perform and then do better. Thank you, all the analysts and investors who have been with us for your continued support. We'll definitely come back whenever there are a few more updates which is to make. Thank you, and see you. Have a good day.

[Operator]

Thank you very much, sir. Ladies and gentlemen, on behalf of Spark Capital Advisors, that concludes this conference. Thank you for joining with us, and you may now disconnect your lines.