V-mart Retail Ltd

NSE:VMART

Earnings Call Analysis

Revenue Growth, Margin Expansion, and Strategic Enhancements

V-Mart showcased strong performance with a 20% sales growth year-on-year, particularly excelling in Tier 2 to Tier 4 towns. The company's EBITDA at the entity level was 12.6%, despite a 60% reduction in losses from LimeRoad. Strategic cost-cuttings, including a 59% reduction in marketing expenses, improved efficiency while maintaining customer satisfaction, illustrated by a consistent net promoter score over 60. Additionally, store expansions continued with the goal of opening 50 new stores this year, contributing to a robust outlook. Inventory management improved, with a quarter-on-quarter reduction of INR 144 crores, enhancing the freshness for the upcoming festive season .

Overview of Q1 FY '25 Performance

V-Mart Retail reported a robust quarter with a year-on-year sales growth of 20%, signaling a recovery and improved consumer engagement. The Unlimited brand also saw a growth of 5%, which, when normalized for store closures, reflects an 18% increase. This indicates strong traction in the Tier 2, Tier 3, and Tier 4 markets, aligning with V-Mart's focus on these regions.

Performance Breakdown by Segment

While V-Mart's core offline business showed healthy gross margins, LimeRoad faced challenges with revenue down by 33% year-on-year. This drop was primarily due to significant marketing cuts to drive efficiency and sustainability. Here, LimeRoad posted an EBITDA loss of INR 10 crores, but marked its fifth straight quarter of loss reduction, signaling potential for a turnaround.

Guidance and Strategic Focus

Management targets an ongoing reduction in LimeRoad's losses by around 20-30% quarter-on-quarter, aiming for less than 50% of the previous year's full-year losses. Meanwhile, V-Mart plans to maintain its EBITDA margin around 12.6% overall while working to return gross margins for offline business to pre-COVID levels of about 8-8.5% over the next two years. This reflects a focus on improving efficiency and maximizing sales throughput.

Cost Management and Operational Efficiencies

V-Mart reports a 7% decrease in overall expenses, with marketing costs slashed by 59%. This strategic reduction allowed them to improve net promoter scores significantly and maintain customer engagement without heavy promotional spending. However, manpower costs rose by 17%, attributed to performance incentives tied to sales growth.

Store Expansion and Future Projections

For Q1, V-Mart opened seven new stores, pushing towards a target of about 50 new openings for the fiscal year, focusing on the pre-festival period for optimal sales opportunities. Management believes that the store openings will yield higher margins in initial operations. Despite closures of non-profitable locations, they forecast expanded participation in the retail market.

Consumer Trends and Market Positioning

Consumer trust is strong, with repeat purchases accounting for over 70% of sales. V-Mart’s strategy has shifted toward enhancing the quality and variety of offerings, directly addressing evolving consumer preferences—for example, the introduction of stores aimed at digital-native demographics. As a result, management remains optimistic about sustaining growth even in adverse market conditions, indicating resilience in the business model.

Conclusion: Looking Ahead

Moving forward, V-Mart is laser-focused on driving efficiency, reducing losses in LimeRoad, and expanding its footprint in key markets. With a mix of strategic investment in quality and effectiveness in marketing spend, the company aspires to stabilize its EBITDA margins in line with historical performance by FY '26. Investors can look for continuous improvement in profitability driven by solid operational strategies.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to V-Mart Retail Q1 FY '25 Earnings Conference Call, hosted by Avendus Spark. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Tejash Shah from Spark Institutional Equities Private Limited. Thank you, and over to you, sir.

[Tejash Shah, analyst]

Thank you, Sagah. On behalf of Avendus Spark, it's our pleasure to host the Q1 FY '25 Earnings Conference Call of V-Mart Retail Limited. From the management side, we have today, Mr. Lalit Agarwal, Managing Director; and Mr. Anand Agarwal, Chief Financial Officer. I'll now hand over the call to the management for their opening remarks, followed by a Q&A session. Thanks.

[Lalit Agarwal, executive]

Good afternoon, ladies and gentlemen. Thank you, Tejash. Great to see you guys on once again in the call. Very, very happy in quarter in terms of political scenario in the country in terms of the confirmation of the change in the consumer behavior. So what we have noticed in this quarter which has happened to June, which is the biggest festival in the old democracy, which is in the election. And then we -- a lot of election rallies, and a lot of media exposure to a lot of discussions for the win, which was largely around politics and we all know about that.

But in -- so it definitely impacts the businesses also, especially the smaller districts and the smaller towns. And it also curtail some of the movement, and some of the [indiscernible] in that particular town or city. Wherever these kinds of [indiscernible] big, large, leader countrymen and [indiscernible] on average, almost 3 to 3.5 [indiscernible] disturbance that we had across our towns, wherever we operate [indiscernible]. So largely, this is also -- technically has been a big driver of economy, we believe, because this [indiscernible] of spending in the whole -- by the whole machinery and department of machinery or [indiscernible].

So some spending definitely. Not big spending for the consumer but definitely it is good to tickle the economy and then [indiscernible] so that's what I believe because [indiscernible] from demand [indiscernible] trying to consume but there's some form of inertia there to buy and push [indiscernible]. We saw some detriment -- we've seen some detriment coming in from the [indiscernible] the markets. We are getting the [indiscernible] response from other companies and then other players and [indiscernible].

So we are also going to [indiscernible] 7 companies haven't still recovered or are still looking at [indiscernible] there are definitely some green shoots. Not too much because what we [indiscernible].

Definitely there is some [indiscernible] on the basic staple inflation especially from the [indiscernible] but on some part of that, [indiscernible], this is definitely leaving some money for the normal households to spend on other items. But still the inflation rate continues around 5%, still on the high [ dose ] so that is still a problem to a consumer into a normal household, which is arguing that [indiscernible]. So that's the normal household and [indiscernible].

So the market seems to become a little better, employment status looks a little better on the ground level. People are confident that there is definitely going to be a better employment because states are trying to open consumer and opening the large amount of masses by giving a lot of good promises and newer promises and newer benefits and newer plan even before election. And now after election as well because of the kind of results that we have got, which is also bringing in some kind of complemented overall market which is what we required, which is what in the future development. So I think that's a good news that we are hearing. The confidence index of the consumer is getting better. They believe that they will not be spared in the coming future. They will definitely get more employment and their ability to earn and add more [indiscernible] is a little bit sustained even on the skills part or even on the employment part, a lot of work has happened.

So some of those good news. On the competition side, I think the competitors have been a bit a [indiscernible], a lot of competitive activity has been seen, always we see the activity. Still people who are able to give good experience to the consumer and provide good quality and product good variety and get experience are able to sustain and then definitely are able to grow much beyond the required. So we are seeing those good positive signs in the market. With market definitely fair. It is all about how much market share can you acquire and versus there are also other set of competitors who are also struggling and largely, we are seeing some struggle coming in also from the premium segment of the market or the upper middle segment of the market, where the prices of the premium brand operates. So we are seeing some pressure there. We are also seeing pressures on so-called value retailers who are still on the little higher end of the market segment.

They are also on the report of -- struggled also in there. But I think these are [ February ] consumers, people did get back into the basic demand and they will come back to their [ bases ]. On the other side, I think for -- but I think we have been trying to focus on our basic fundamentals. We had focused on doing all agree generated markets and then largely impacted by a group -- but yes, we definitely believe that these consumers are aspirational now, and they will want to continue both and doing better. They are much more aware as a consumer and we believe and we understand and we recognize that these consumers are no more the traditional consumer. They are definitely a little more in other words consumer demanding a little better fashion, demanding and it's the higher fashion, demanding the latest collection, which is coming in.

So some of those people, we are seeing. Definitely consumers are appreciating all these things that the brand does or what we have to do. As we have been speaking for the last 2 years, we have been continuously working on our internal processes, on our internal parameters, on our internal understanding on the consumer or the technology or even the way we source and the way we procure and the way design and the kind of quality that you want to provide the consumers and experience and the detriment of experience that we want to provide. Some of those initiatives, which we were struggling in the last year, are showing some results. We still believe that most of the -- all of our efforts have not been completely ruled out. We still believe there is -- we only reach 50% of what we could have done. But still, there is a lot more that we have in plans that we will want to better and then get this experience to the consumer.

Now consumers are ultimately worried about the product that they get, the prices that they get and the experience that they have when they are shopping at the stores or when they go back into their home and post sales experience or they connect with the brand when they go at home or they are not coming in the store, how do you do that. So that respect, our only team has also really build them up, [indiscernible] team, including the off-line team. They have really won the day nicely on a product call benefit which is actually giving a rate on the experience for the consumer, giving more satisfaction to the consumer. We definitely have much better communication to integrated some communication tool. We have now 100% digital billing done at the store, integrating the customer or getting integrated with the customer on the [indiscernible] account. So that is also giving a lot of personalization to the consumer and then definitely talking to them over a period.

So some of these pieces and then also reaching them out on the digital medium, trying to create this impact. So whatever we brought is the brand trust, whatever the understanding, the trust on V-Mart, the customer of our customers on our -- giving in the past and even today. It is definitely showed up whatever we did, whatever we were doing around and wherever we corrected we got great response. We got really good trust and good feedback from the consumer. Consumers came out in these numbers and then they're going end up and give us the confidence of that whatever we are doing is in the right direction both in terms of the fashion element because that was a big, big change that we brought in terms of focusing more on the [indiscernible] vet connections process looking more on the fashion and the changing fashion needs of the consumer and understanding those and implementing those at [indiscernible] in the store.

So some of those areas and our special focus on quality, which we have been meeting for the last two, three quarters has also shown a good result. So quality, my customer is recognizing and customer is appreciating the quality effort that we have taken. So all of these areas given together has really given us a good input. So that's the area that we want to really focus on. We believe that our doing is going to definitely give us outcome, and that is the potential that we look at in the market. The market is definitely very large. Market is too large, and we all understand and we have seen and we know that this market is becoming larger and larger as we are going and we as a position of India position is very good. What we see in this value retail market, definitely, there are more players walking into this market. But in that same rate or more than that rate is the per capital income growing or for capital consumption growing at the fashion level and very definitely some shift which is happening from [indiscernible] and which is bound to happen more and more. So that part has to remain.

So it is more about reacquiring our market share, the market in [indiscernible]. So that's the plan. We definitely want to focus on both the market, our approach on pricing [indiscernible] market in the following year. Also [indiscernible] confident. The customer has understood what we are offering, and we are getting a lot of new set of customers and we get customers from there. So good input coming both from the existing stores, some new stores that we opened up very good benefit from there also. So that's the part we are all into. We have also tested on one new concept in a town called [indiscernible] with the line road branded stores and that we have just tied to pilot one store in trying to bring a little more elevated fashion, a little more lighter density of inventory per project, which is giving a little more premium to and putting the prices at the same well or even at the lower level, trying to create a list experience or the new generation customers.

So we are trying to do because we saw some brand really getting good response and that gives us real confidence to the consumer need and the consumer approach towards buying great fashion is coming in not only from quantity but comes in from more of the way that we are showing at the time and the way we can show up the trend. So there is a clearly, we believe that there is some amount of baggage that the brands that have been limited or remark. So we are trying to experiment that with our new brand, which is a line broad brand, which is more digital, which is more nearer to the [indiscernible]. So that's where we tested with one store until now, we are early and [indiscernible] you definitely also experiment more with 4, five more stores in this particular year so that we get the confidence on this particular new initiative and then we will try to allocate some amount of budget in the next year that still we are under discussion.

So that's what we have definitely, there has been some areas where we've really worked hard in terms of people. The trigger people's motivation in terms of setting their base salary, trying to retain them, working on official. That's one of the newer ideas that we have worked down. And that some of those stores or some of the markets where we used to have higher attrition, really attrition rates have come down. Those things also are -- is really helping us in choosing the sale and there's very incentive plan that we rolled out to the [indiscernible]. So some of those things is giving a lot of motivation also to the consumer. One more thing, on all those stores, which we always said that [indiscernible] some do also started showing a good response we end and see that some of those stores are getting discovered or are getting discovered for the first time because they never got a discovery time after COVID and before COVID and around COVID. So that's the change that we are seeing in our market, consumer are appreciating. Will -- that we'll talk about this more, let me hand over to Anand so that we can give you a [ retainment ] on the results.

Over to you, Anand.

[Anand Agarwal, executive]

Thank you, Lalit, and good afternoon, everybody. As Lalit mentioned, it's been a good quarter with the impact of the changes that we have been busy doing over the last 2 years starting to become slightly visible. Let me first take you through some of the key highlights from the quarter and then we can open the house for questions. Quarter 1 typically is the onset of the summer season and is marked by strong [indiscernible] calendar. This year was slightly unusual with no [ reading ] days. But despite that, we have seen good improvement in our like-for-like sales as well as the sales of [indiscernible] . On the sales front, we are seeing much better footfalls and improvement in total number of invoices cut which is a strong reflection of the improved efficiency measures being taken by the company since the last 2 years.

At an overall level, the sales grew by 20% for V-Mart and 5% for Unlimited year-on-year. The Unlimited sales growth was impacted in the quarter, largely due to the closure of 15 stores since last year. Normalizing these store closures, the Unlimited stores would have also grown by 18%, which is closer to the overall V-Mart sales force numbers. The new stores opened in South under the Unlimited brand continued to deliver higher sales and profitability versus the relative legacy store in South. In the last 3 years since acquiring the Unlimited brand, we have closed 19 stores and opened 23 stores in out, taking the net Unlimited store count today to 78.

At an overall level, while all states saw good growth during the quarter, but in particular, you see Bihar, Uttarakhand, Rajasthan, West Bengal and Karnataka saw relatively better traction in footfall as well as sales growth. Another heartening fact evident is the sales -- higher sales growth visible in Tier 2 and Tier 3 towns as well as Tier 4 towns, geographies, which form the biggest base for the typical V-Mart customer profile. The apparel ASP, they grew by 3%, largely due to the product mix change as a fallout of 0 [ weddings ] during the quarter in north. While in south, the ASP degrowth was a fallout of the strategic shift towards shopper and more value-driven product pricing that we have been trying to incorporate since the last 2 years. The price correction exercise, which was initiated last year is already over, and we should see ASPs stabilize at these levels in the quarters to come. But for any product mix changes due to shift in weather or any such a calendar shift.

The stabilization of the new warehouse in the last 5, 6 months has also helped improve the supply chain efficiencies, which should see even further betterment in the months come. In line with our strategy on making the LimeRoad business sustainable, we cut down on the marketing spend, which impacted the top line growth, which reduced by 33% year-on-year to INR 12 crores from INR 17 crores last year. Coming to margins, the gross margin for the offline business remained healthy, while flat, while the decrease in the revenues for LimeRoad business segment, which 100% flows in as margin optically reduced the overall gross margin by 60 basis points at company level. On a full year basis, the gross margins from offline business would remain at similar levels of last year as we continue to drive giving higher value to our customers and focusing on growth through volumes.

Coming to expenses. While the overall expenses have decreased by 7%, the major shift is due to the reduction in marketing by 59%, which is -- which largely has come in from the reduced spend in the LimeRoad business and also a very significant and strategic planned reduction in marketing spend in the off-line business, which Lalit also talked about that the increase in the customer trust portion has definitely worked wonders for us. And that reduction in the off-line marketing spend in the V-Mart business or Unlimited business is also close to 42%. The marketing spend will remain reduced on both the segments, online as well as off-line as we create better synergies through cross-promotion opportunities on the digital front for our unified omni customer base without impacting sales growth at an overall level.

Despite this low marketing spend, we have definitely improved our customer connect. Our NPS scores, which we have been -- which we have started to track since the last almost 8, 9 months has averaged at greater than 60 consistently. We've had more than 5 lakh Google reviews averaging 4.4 plus, and that is a strong testimony to the value proposition and the brand trust that the company is able to generate. Coming to manpower cost. The manpower cost was up by 17% on the back of the increments, slightly higher restock expenditure and also increased incentive payouts in line with the sales growth. And as Lalit mentioned, I think we have been trying to curtail attrition, which should effectively yield into better top line growth and more efficiency going forward.

There is definitely a higher focus on employee reward and motivation to positively influence efficiency, which will drive our overall profitability and growth. On the other expenses side, we saw a decline of 5% year-on-year due to some store lease renewals, which were earlier part of rental expense being short-term leases until last year. But post renewal have moved to interest and depreciation lines as part of the IndAs 116 adjustments. The other savings is on account of reduction in the LimeRoad logistics cost, which is in line with the reduction in top line for the online business.

Moving on to EBITDA. For the V-Mart core business, EBITDA for the quarter was 13.4% with Unlimited at 18%. At the entity level, the EBITDA stood at 12.6%, which includes a loss of INR 10 crores coming in from LimeRoad, which is 60%. The EBITDA improvement has been a fallout of 60% reduction in loss from LimeRoad healthy like-for-like growth as well as positive impact from the closure of loss-making stores in the last year. On the CapEx side, we spent INR 26 crores during the quarter or payed out INR 26 crores, majorly on new store openings and Q4 refurbishments. Inventory reduced by INR 144 crores quarter-on-quarter, helping improve the working capital cycle. And also, it will help in improving freshness for the upcoming festive season even more.

Free cash flow for the quarter stood at INR 43 crores. During the quarter, the company opened seven new stores, 5 in North and 2 in South and closed 3 Unlimited stores. The runway for the year is still maintained at 50-odd stores, a large part of which will be open between quarter 2 and quarter 3. Most of the unprofitable store loses have already been completed now. There may be the regulatory poses which may still happen in the usual course, but nothing significant.

Coming to the last part on LimeRoad. LimeRoad continues its improvement journey with 60% reduction in losses year-on-year. This is the fifth straight quarter of continuous improvement in EBITDA losses for LimeRoad. The strategy on LimeRoad remains the same, extend LimeRoad as the fashion forward omni arm of V-Mart and facilitate very easy order placement process via V-Mart customers through the LimeRoad app initially for missing sizes or missing colors in offline stores but eventually extending it to offering a bigger catalog of products which can be offered beyond off-line retailers. So getting into more and more mix of omni share.

This is a long-term strategy, and we remain committed to enhance this offering with minimal loss funding or margin profitability in the quarters to come. The losses in this business should continue to keep coming down quarter-on-quarter. LimeRoad will remain an important, but financially, a small nonmaterial digital business platform for V-Mart. So that is all from my side, and let's request the moderator to open the house for questions.

[Operator]

[Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum Broking.

[Shirish Pardeshi, analyst]

Congratulations for good sets of numbers. I think in the beginning, if I may ask, the portfolio growth which we have reported in the quarter, which is 36%, which is very strong. However, when I look back, it is still lower than the pre-COVID level. Just I was more curious if you think Tier 3, Tier 4 markets are faring well and you've reported a 9% growth in Tier 3 and 19% growth in Tier 4. What percentage of this footfall recovery has happened or maybe if you can splitting Tier 3, Tier 4 specifically, if you can break down 18 million, what kind of footfall is there?

[Lalit Agarwal, executive]

Shirish, definitely, we have seen better footfall. We were still able to compare it with earlier years before footfalls but still, I don't think that the footfall is lower than the earlier results. They are definitely and some reporting ever that we used to have on footfall. But otherwise, what we have noticed is there's a good amount of substantial growth in footfall. And also, you have to understand that [indiscernible] that within the market, the market has also broadened and there's a lot of retail and a lot of brands which are opening a lot of stores that are open. So it is more about quality of the customer. It is not about the customer who just coming in. That is more about quality customer, which is coming in, and it is there. So no worries, it is a little better.

[Shirish Pardeshi, analyst]

No, the reason I'm asking in the beginning, you mentioned that there is a change in consumer behavior. So I was more curious if the profile of customers has completely changed because we have taken a pricing action in that footfall is going to be sticky.

[Lalit Agarwal, executive]

See, definitely, what we are seeing is these are -- very clearly, we are showing an amount of trust. Consumers are always around us. And this is such a wildfire that spreads in this market if you do have those things and what we believe we have to continue definitely doing good things, sustain them, retain them and bring it more betterment in what we are delivering what we are grow. Footfall, I don't think it's a concern because if you understand all this, Shirish, this year was a [ signal ] reduction in advertising expense also. And we have not pulled in customers. We are not asked or push on certain promotion or certain discounts or certain sort of advertising that you have tried to bringing customers. So this is a natural footfall, which has got related using [indiscernible] we actually did not do any advertisement this first quarter.

And it is just whatever that we are seeing on the realizing income is largely from the LimeRoad side and the other pieces are also on further branding, which is at the store branding [indiscernible] but we've not done any [ advertisements ] these results are great results, giving us more confidence and more of the initiative and whatever betterment that we have done are all bringing in from business and getting customer the continent to the customer, where they are spreading the word, they are becoming our brand in [indiscernible] and we have also started tracking some NPS scores in stock remaining great reviews and great [indiscernible], great move. So all of those are really helping us a lot.

[Shirish Pardeshi, analyst]

No, I'm still harping on this number because even ASPs has dropped. So -- and we also heard the another player V2 Retail is also reported a response set of number. So if the market, which is down trading and lower price point is going to drive the volume, is this the strategy which you will also follow or there is a change in strategy in our core football, which we have lost in between has come back?

[Lalit Agarwal, executive]

There's no shame in that we had taken a price hike 2 years back. We will do it, we came back. We reduced our prices last year. This year, we have not cut down any more prices. It is only at Unlimited where we have cut down the prices because we wanted to attract new customers. But at V-Mart level, there is a cut down of prices. We have retained our ASP and we have no plans to cut down our prices. We still believe quality, good fashion and right pricing is what we are focusing on. We are not driving or cutting down the prices in terms of our customers. There's no such strategy.

[Shirish Pardeshi, analyst]

My second and last question on the margins. After many years, we have delivered a very strong margin. So my question is that -- 2 questions, rather there. Just LimeRoad what you have done INR 10 crore and INR 10.3 crores. Is this going to be a steady or we will think the losses will come down? And how much confident you are that because in a weak quarter, we have delivered a good margin. So if quarter 2, quarter 3 is going to be a good jump in the festive season and marriage, do you think margin expansion can happen from here?

[Anand Agarwal, executive]

So on the LimeRoad side, we should definitely see quarter-on-quarter further reduction in the EBITDA loss may not be very substantial but maybe 20%, 30%. The loss is something that I would definitely want to visualize and achieve. It's a strong work after already cutting in a lot of -- already improving the efficiency significantly in the last one year. So it's going to be uphill task, but that is what the team is committed to deliver. On the main off-line business in terms of margin expansion, this quarter 1 is a good quarter. Quarter 1 is not a weak quarter. Quarter 1 is a good quarter. Always is a good quarter. Quarter 3 is the best quarter, followed by quarter 1. Quarter 2 is typically a weak quarter for us with monsoons and end-of-season sales, which is not a very festive period also.

So quarter 2, typically, is a loss-making quarter, and we should not see any margin expansion or any improvement there. But definitely, we should see betterment coming in from quarter 3 again. There should also be some betterment in terms of top line in quarter 2 and definitely in quarter 3. Otherwise, we are not looking at margin expansion in percentage terms. We will -- as we've always stated, we would want to look at retaining the margin percentage but improving the rupee margin throughput through higher volumes and through higher top line.

[Shirish Pardeshi, analyst]

No, the reason I'm asking because if I look at manpower cost has grown 17% and power fuel has grown 8%. So what are the source of these margin drivers?

[Anand Agarwal, executive]

The source primarily is going to come in from lower discounting, also some like-for-like. We have seen good like-for-like coming in this quarter and we should continue to look at improved like-to-like through improved efficiencies that we've been talking about of all the work that has been going on in the background. And that is something the results of which we have already seen in quarter 1 and we are also seeing a similar kind of trajectory building up in quarter 2 and probably also going forward. So the HR cost increase is partially an investment and partially also a correction but we are quite hopeful and optimistic that we will be able to contain this inflationary rise or compensate this with adequate amount of margin delivery through like-for-like as well as lower discounting through improvement in the freshness index of the inventory.

[Operator]

[Operator Instructions] The next question is from the line of Sameer Gupta from India Infoline.

[Sameer Gupta, analyst]

Firstly, sir, on the store addition targets and during the call earlier, you mentioned that you will be looking to add 50 stores during the year. Now we've added around 4 stores. So that's a very large pipeline of stores that you're guiding for. So just a clarification. Is this firstly, a gross or a net number? And how many more store closures do you envisage, at least in this year?

[Lalit Agarwal, executive]

This is definitely a gross number. We are focusing on gross numbers. There is a continuous delay in store openings. But we are -- this year also is strategizing that you want to open more number of stores just before the festivals, so that we get a good run up. And most of the stores that we have opened in the past during the customer period that gives us a better outcome even throughout the year. So for some of those strategies also include, but yes, you would get a good number of store count getting opened in this particular quarter and the next quarter. So we can focus on those and we have closed down some stores. There are still some more stores that we need [ done ] in the year. That's it. So that's where we are.

[Sameer Gupta, analyst]

Secondly, on the margin. So you've done a very healthy margin, I guess, it's around 7% pre-IndAS based on the offline stores this quarter and which is like quite healthy in recent times. However, we have reduced ad spends, and we have not added a lot of stores in the last one year. We have closed down a loss-making stores also. So in light of all this information, when you resume the store addition aggressiveness, would you not say that the margin will have some level of downside from here on? And this is adjusted for seasonality between the quarters. Would you agree with this assessment?

[Lalit Agarwal, executive]

Sameer, so for us, until now experience that definitely, there are costs that -- all the costs even go in the CapEx there are some costs which do flow into the P&L. So there's some element that other by new stores normally deliver higher margins. The new stores in the first year of operations will deliver higher margin, not necessarily lower margins. So I don't think the [indiscernible] completely is true.

[Sameer Gupta, analyst]

I would have imagined that it takes some time to ramp up. So anyway, maybe my understanding is incorrect.

[Lalit Agarwal, executive]

[indiscernible] understand. Most of the times, the stores that we opened up are designed in such a way that the first year of operation itself right from the second month, it should try and deliver the targeted EBITDA margin. So that's the way we plan our stores. But almost 80% of the stores getting to that level, there are [indiscernible] on the stores [indiscernible] in that level in the process with all partners.

[Sameer Gupta, analyst]

Lastly, sir, just if you could -- I understand you have mentioned a lot of efficiency measures that you have taken, which is now showing in this like-to-like sales improvement. But if you could just list down top 3, 4, 5 kind of initiatives that you have taken, it would be very helpful. A little bit more on specifics.

[Lalit Agarwal, executive]

There's no specifics, Sameer. We gave you all of our detail and you need to actually tighten at least 150 to 200 crews at multiple areas to try and get some [indiscernible]. The majority of those are ultimately what consumer is interested in these products. So more around product, we have been really working hard on the product on the design part, on the whole assortment part and the whole qualitative part on the pricing part.

So some of the areas which we were working, you remember we have [indiscernible] there's a lot of bonds at dated. A lot of changes be opposed last year, we start to enter changes due to some of those [indiscernible] otherwise also, there was also last year that you remember we have moved our warehouse to a new property in new warehouse [indiscernible] warehousing ready, some of those initiatives that we implemented in the [indiscernible] side those [ future spending ], chain management technology or culture management, some forecasting, some allocation to some of those -- which gets a better understanding of consumer persona, which gives us a real clear edge and the seasonality on the customer pipe of the market.

So some of those pieces, which is driven through technology, and driven through the automation processes that we implemented [indiscernible] at turnaround time at the stores, reduced our inventory, increase our freshness. Our freshness increase to gain the customer a more fresh [indiscernible] that are all those things actually broadly and then people and definitely internally [indiscernible], which really has given a lot of support and then their motivation, their strategy, [indiscernible]. Some of those pieces definitely brought in good input. And then not more to be done. A lot more has been done in the process in multiple medias, but a lot more are still to be done [indiscernible].

[Operator]

Next question is from the line of Rishi Mody from Marcellus.

[Rishi Mody, analyst]

So just on the employee cost side. How much of this employee cost would you see is a nonrecurring nature, maybe some onetime retention bonus or something?

[Anand Agarwal, executive]

So Rishi, I would not want to call it out as onetime changes. I think what we have -- what we are trying to do is something slightly more sustainable. I would like to see this kind of -- at least the current cost is there in quarter 1 to get replicated. This is -- some part of this or a large part of this is also variable cost. So if we achieve, we provide for more or if we pay more. So thereby, it's not a fixed cost increment. It's also very largely linked to a variable kind of incentive or even our ESOP cost is also linked to performance. So a large part of the changes that you see in this quarter in terms of increase is coming in from variable increase. And that is what we would like to continue. There is no significant onetime change that you -- that should be there in the quarter cost.

[Rishi Mody, analyst]

And just on this LimeRoad employee cost, you've seen a decent decline coming into Q4 on LimeRoad. But Q1, we are seeing a sequential jump of almost 250% on. So just, is there an ESOP cost line there? I'm under the impression that a lot of the senior management of LimeRoad is no more with us.

[Anand Agarwal, executive]

Our cost has also come down. It's not gone up. In fact, the LimeRoad quarter 1 cost has come down by 14%.

[Rishi Mody, analyst]

Not on a year-on-year basis. On a Q-o-Q basis, if I'm looking at Q4 numbers, I have 27 million as the cost.

[Anand Agarwal, executive]

That is adjustment because of the ESOP structure, but otherwise, in -- at an overall basis, there has been a marginal reduction in LimeRoad employee cost. Maybe the comparison that we are seeing from quarter 4 to quarter 1 may not strictly or truly reflect the 2 changes, but at an overall level, the actual employee cost at LimeRoad has marginally come down, not substantially, but marginally come down.

[Lalit Agarwal, executive]

So just answering your question on that. The management cost, the management which went out on the LimeRoad, where cost of ESOP was actually not accounted because the kind of performance that they were delivering, actually, those ESOPs who are not able to be notable to because at a cost to the company. So still never got a [indiscernible] . So that is what we are talking about.

[Rishi Mody, analyst]

Just wanted to understand this LimeRoad physical store format. You mentioned some comments in the opening remarks that you're trying more and more Gen Z kind of an offering here. But I think it's been in operation for maybe a month or 2. But what are your learnings in terms of what data telling you out there if you could just versus say an Unlimited what the difference there in the South India market for LimeRoad versus Unlimited, if you could help me with that.

[Lalit Agarwal, executive]

Clearly, it's a new testing for us. We've been driving it from multiple experiments in terms of the renewal, in terms of the product lines, in terms of design, in terms of the basic belief of what the customer is, who the customers are. A little bit of change in the internal ambiance . So we've got [indiscernible] Tier 3 town, I think got [indiscernible] go for a Tier 1 town for all of those. But still, what the response that we're getting is encouraging better than Unlimited store that we would have opened as of now. It is normally 18, 19 days since we have opened. Very mature time for us to really respond on those. But we look at a lot of positivity, a lot of revenues coming out and it is also driving a lot of omnichannel mindset, and we saw a lot of digital customer -- existing customers are trying to -- were shopping and online. A lot of that came in the good on the customers who are shopping online is coming to offline. The trust over the brand was there and then has been solidified. So good learning [indiscernible] get into all biometrics. So we'll be updating.

[Rishi Mody, analyst]

And the team that's going to be running this experiment, it's separate from the V-Mart team or is there a bifurcation or is the same team who will be managing the operations, the inventory, all that stuff?

[Lalit Agarwal, executive]

There's a part of [indiscernible] , which is different, but most of the units are common. So part of the team, which is on the back-end side and on the [ home ] design and the procurement and the buying . So that particular team [indiscernible] but that other than that, most of the team is common, most of the internal team members only a little bit concerned [indiscernible] and took up the channel and kudos to the entirety will really don't happen.

[Operator]

The next question is from the line of Kunal Bhatia from Dalal and Baja Stock Broking Limited. As there is no response from the line of the current participant, we'll move on to our next question. Our next question is from the line of [ Sabri Sachi Mukerji ] from Bajaj Finserv Asset Management Company.

[Unknown Analyst]

Good to see some great numbers after a long time and my first question on the -- if I look at the conversions, I think it is at probably at historical lows, below 50%. It slipped below 50% last quarter, 49% and slipped further to 47% this quarter. While the footfalls have surged sharply, but how should one read this data point about conversions, if you can help us?

[Lalit Agarwal, executive]

Good point. And as always meriting the fact that there is a different methodology and the little more compliance over footfall reported that we have executed because we believe, and we all know that most of the sharpening a couple people together and buy. And we continue to grow more than. So normally, the conversion rate should not be greater than 50% is what my internal belief is and that is what we are forcing at this is still a manual process. But still, I would also say that because of more retaining around our stores, because of more retailing in the same market, people want to definitely go back from our store, check out the store, come back and then buy. So there is some amount of discovery which consumers are making while traveling multiple stores also, who don't end up shopping the first store that we get into.

So some of these pieces we also saw a lot of customers going back and coming back to buy and then going back once have been coming back again to buy. So some of those things we saw, which definitely for us, largely, we believe taking up the growth in cash [indiscernible] and how much cash [indiscernible] has the growth and how is our average bill size moving. So that's the major indicator that we will have to focus on. And that is what we are doing. We still believe that better service quality at the store level. We have also somewhere brought down our convincing attitude there. We used to [indiscernible] customer, talk to them more, pressurize them more, we don't want to do that. We want a full factor to get created. So that's what we are also trying to do. So that the customer comes back by their own and if they like the product, if they like the price, they like the services. So that's the kind of model that we are getting in. So that we don't force [indiscernible]. So that's the whole process that we are doing.

[Unknown Analyst]

I understand the fact that probably five years back, there was not more options to these markets that we operate, and now there are several other options that people are taking out other options. I was also wondering, does it -- the freshness index of the stores, does it also, I mean, matter? If, let's say, a store is, for us, gets refurbished or refreshed, does it put in more customers?

[Lalit Agarwal, executive]

It does. It does, yes. If the store looks better, it definitely posted more number of consumers. It's the -- because when you tried experimenting with new consumers this year, we also tried to focus more on digital [indiscernible] and try to bring in customers because we never did a lot of print ad or of those outdoor advertisement. So we try to focus more on some organic kind of content, which also brought in lot of new consumers, a lot of new customers who wanted to come in, check in and then go. And then basically a lot of the development that we did in terms of our [indiscernible] renovation and reengineering of the front view of the store. So that are those things that we have attracted lot of customer, a new [ football ] line.

[Unknown Analyst]

The other question that I had is, in your opening remarks, did I hear you right that you mentioned that some of the national payers value formats are also seeing some sluggishness when you are talking about the competitive intensity? Did I hear you right?

[Lalit Agarwal, executive]

Yes, you're right. There is some pain with a couple of payers also we have not been growing in line with what we have done. And necessarily everyone is getting not a growth. So there is some pain in the market also, which we are seeing. So not -- this is what I wanted to explain that it is just not driven by market. It is also initiatives and efficiency that a brand brings in or the better value creation that a brand does for the consumer.

[Operator]

The next question is from the line of [ Nika ] from [indiscernible] Asset Management Company.

[Unknown Analyst]

Firstly, I just want to understand on the working capital side. Sorry if I repeat this question, but from the -- there was a significant improvement specifically on the inventory side. So how one should consider from the going forward perspective, what is the steady state working capital cycle, one should assume your in the V-Mart space?

[Lalit Agarwal, executive]

Because definitely, we are working on basic fundamentals and basically [indiscernible] Are trying to reduce the inventory, better the efficiency of inventory has the base of inventory in the control. Those are one of the basic parameters and then definitely have a better cash flow because that is also very, very important and has a positive cash flow. I think the team really work and we are trying to -- and that's everything about creating efficiency. And it also is also about freshness. So all of those together, most of our capital investments and [indiscernible] to create those, we don't have those kind of purposes also. So -- and the inventory management has been also going to tight and very good, that is also beginning from these. So we should expect a little more betterment from our side, but it will also only be seasonal in nature because if you look at Q2 numbers, it will show a little more [indiscernible]. So it's more seasonal also for that division. But yes, you'll see improvement [indiscernible].

[Unknown Analyst]

And secondly, from the product assortment side, since you mentioned and we also understand that there is a lot of competition coming in. So how are we approaching the product assortment at the store level? What are the kind of a fresh inventory we have or, say, 2022 inventory would be there in any of the store? What kind of strategy we have on the product assortment side?

[Lalit Agarwal, executive]

So the cost, we've really worked very highly on the whole freshness index. And the freshness is the inventory freshness. And that has been due to us. And that is also resulted due to some margin losses because we've also come on inventory prior to liquidate at discount. So our freshness index has bettered by almost 10%. So that's something that we really have worked on very hard. We would also see higher shrinkage numbers that is very reported because our provision policies and the provisioning that we are doing on the inventories have also been very [indiscernible]. So we are trying to really work very heavily because we now understand, there is a lot of change which is revenue fashion business. And there's a lot of change in the assortment that we sell earlier and [indiscernible] What is selling today.

A lot of [indiscernible], a lot of pattern and putting sale. So some of these things is making this business a more agile driven. So we are trying to get into more activity. And we are trying to make this assortment much more better and much more pressure. So that's the area of what we are doing. We still have not reached their desired goal where we could, but we are working all towards it.

[Unknown Analyst]

Sure. And just lastly, since there is a lot of hopes going into festive and the H2 to be a better one. Have you seen any similar kind of a trajectory in the last 1, 1.5 months? Or if you can comment on that? That will be my last question.

[Lalit Agarwal, executive]

Because we believe the betterment that we are trying to bring in should continue our performance or we should continue with our performing. And that's what we continue to do. We still believe there's a lot of opportunity. We are still -- we haven't still done the glass is half full is what I understood. There's a lot more to fill the glass, a lot more work to be done. If we are able to do, stick more out, do all of those things. It is definitely bringing more complications, more than IT, more change management which is required. So all of those are driven. They should definitely get those benefits. And then we should definitely come up.

[Operator]

The next question is from the line of [ Ronak Karo ] from [ Shanika Securities ].

[Unknown Analyst]

I have noticed that strategy is very much focused around Tier 3 locations. So I just wanted to understand what is our right to win strategy against the traditional mom-and-pop stores. So apart from having an extensive inventory base, what is our strategy in terms of non-apparel sales, so expanding the SKU so that a consumer visits and get almost everything at the store? So apart from the appeals, what is the kind of base which we want to offer, number one. Number two, is the kind of loyalty program, which we are running specifically for Tier 3 locations, like, I mean, are we running a loyalty program? And what is the kind of involvement in it? That's about it.

[Lalit Agarwal, executive]

I mean we have been meriting these questions and asking them for the last decade, [indiscernible]. So our model definitely in the model or not a unit quarter anymore now because it was new 10 years back. But now a lot of players are trying to play in that model. The mom-and-pops technically, you understand the bazaar which should have been on town. Those are 800,000 square feet or 500 square feet so there's a counter in front of that, the mom-and-pop has their own small [indiscernible] small process there to purchase and buy or source from the market of [indiscernible] manufacturing very low. The cost of purchase is very high. We're able to sell the [indiscernible] give the quality confidence and have the quality is also very low.

So all of those included, the experience of the consumer who goes into a mom-and-pop store is largely through because of relationship, but it is not more because we get the [indiscernible]. But there are areas, there are products which are more regional, more seasonal, more [indiscernible] where the local pace is very important. And all the various mom-and-pop do act as a great retailer, and they are very successful bearing those kind of areas, like for example, [indiscernible] mom-and-pop are very good in those. So we are seeing no better, no one better in India. So there are ideas, there mom-and-pop has [indiscernible] but other than that, mom-and-pops are not able to create that kind of largeness that kind of variety, that kind of transparency, that kind of quality, trust and that kind of product.

So they have a very small team, they're not able to showcase so much products. They're not able to replenish and replace those products very fast. And the pricing is also most of the time are selling price in their cost price. So they're not able to convert that also. And other than that, I think for us, it is very, very important to believe in quality, believe also in agility of fashion because internationally, whatever is running and whatever you selling in [indiscernible]. So everything is still now becoming the -- the gap is becoming so narrow, it is getting [indiscernible] very fast. So one has to be very, very tight on the [indiscernible] as I'm talking right now [indiscernible] we are following those market trends. We are going out in the market to understand what's happening in all of these markets. So all of this is very, very important, which is not possible for small retailer. So I think that is where we are really looking at. You last question, what is that?

[Unknown Analyst]

So my last question was around do we have a loyalty program in place. So the repeat consumers who are...

[Lalit Agarwal, executive]

Due to database for more than 50 million consumer customers and we don't operate a loyalty point-based program. But we have their mobile number, we have their communication process. We are proper process of analytics and driving customized loyalty program or customized solutions for them, customized offers for them. So there's a lot of analytics based customer communication program that we run, which brings loyalty to the consumer. Almost 70% of sales coming from V-Mart is from the same customers who are repeating. So 70% of sales of V-Mart is from loyal customers already. So that works for us and that is what the customer is very, very happy about.

[Operator]

The next question is from the line of Aliasgar Shakir from Motilal Oswal Mutual Fund.

[Aliasgar Shakir, analyst]

Just first question is on the margins, you did give...

[Operator]

Sorry to interrupt, sir, we are not able to hear you clearly.

[Aliasgar Shakir, analyst]

Is this better now?

[Operator]

Much better.

[Aliasgar Shakir, analyst]

First question, sir, is on the margin. So obviously, you gave a lot of insight in terms of margin. I just wanted to understand from a little -- I mean, to your point of view. So we were doing 8%, 8.5% kind of EBITDA margin. I'm seeing on pre-IndAS basis, pre-COVID on a steady-state basis. Now that you mentioned that LimeRoad is loss reduction phase, and we are also seeing [indiscernible] . Just wanted to understand when should we reach that kind of margin revision, I mean, FY '26 be the year when we should be able to reach and also LimeRoad should break even by then?

[Anand Agarwal, executive]

I think the margin is an outcome of how well we are able to grow our FSG and come back to the pre-COVID [indiscernible] levels. We discussed this also in the past. And I think we did guide towards growing at 2 consecutive years of around 10% SSG or high single-digit SSG to reach that level. By then we should be able to get back to the pre-COVID EBITDA margin level of around 8%, 8.5%. We are actively on track of that, and we are definitely wanting to reach there sooner than later. Definitely, next year is something by the end of which we should exit the year somewhere around that, if not for the full year. As far as the LimeRoad part is concerned, we did mention earlier that we will be reducing our losses quarter-on-quarter like we've been doing for the last 5 quarters straight.

I am not 100% sure that we will be able to reach profitability for the full year by next year, but we will definitely want to bring the LimeRoad losses down to almost negligible levels. They've already started to improve every quarter, and there is some line of visibility where we are able to see better contribution of V-Mart customers contributing into LimeRoad sales and vice versa. And as the base increases, we will be able to reduce our operating costs, particularly the marketing cost, which will help us end the losses there. If the investment also, I must point out, LimeRoad is not just about a loss-making entity or a loss-making platform. It's an extension of what we eventually want also to provide to our customers in a digital format and it will definitely be very important in the years to come.

If we did not even have LimeRoad today, we would still be incurring some amount of that cost already in our P&L by way of our presence on other marketplaces or our own offering earlier, which was vmartretail.com where also we were incurring some amount of losses may -- but we were not disclosing it or calling it out very, very distinctly because segment disclosure at that point was not required. But it is an important investment, but still a non-material number as of now.

[Aliasgar Shakir, analyst]

So this year, INR 40 crore, you mentioned, right, if I'm not mistaken, should be the losses in LimeRoad. So any color you can provide how much we can expect it to go down? You mentioned 20% quarter-on-quarter, but for a full year point of view, if you could be just some sense.

[Anand Agarwal, executive]

So we'll definitely look at reducing the first quarter EBITDA loss is around INR 10 crores. I don't think the full year number is going to be around that number. So I don't want to call out a number but definitely, it will be less than 50% of what we did last year. So we will definitely want to improve the quarter-on-quarter performance in terms of losses but the full year number should definitely be lesser.

[Aliasgar Shakir, analyst]

And second question. Just to clarify, you provide some insight in terms of how the SSGs are trending. But if I understood correctly, Lalit, you mentioned that we also got this quarter some benefit because of the election-related spending. So just wanted to understand, I mean, post the quarter, is the -- I mean, SSG is tracking at the same level? And I don't know it's a little too early, but how are you seeing any early signs of festive trends? I mean, you did a very strong SSG. So I just wanted to get some insight on whether we can expect this stable of run rate to continue in the coming quarters.

[Lalit Agarwal, executive]

[indiscernible] this earlier comment also. See the good efforts that we have been focusing on continues, and we continue to get maybe not similar, but almost in that kind of expense. So we are hopeful to planning have more growth in the [indiscernible] but we don't know what comes, let's do it for the actual hedging [indiscernible].

Factor will be also shifting this time a bit into the second quarter that the far period is the 3 programs. So there'll be some sales that will also go in the second quarter towards the end of September and then followed by the Diwali that going to be partly what we see in the period.

[Operator]

Ladies and gentlemen, we will take that as a last question. I would now like to hand the conference over to the management for closing comments.

[Lalit Agarwal, executive]

So thank you. We had a great discussion, a lot of interaction, a lot of sharing. Please continue to support us, continue to be there and giving us some insight. If anyone [indiscernible] the online channel of LimeRoad, keep giving us continuous feedback on improving what we can do and what we can do in terms of also understanding the market, the economy and also the consumer segment. So thank you so much for being here. All the best.

[Anand Agarwal, executive]

Thank you, everybody.

[Operator]

Thank you, everybody. On behalf of V-Mart Retail, that concludes this conference. Thank you for joining us. You may now disconnect your lines.