V-mart Retail Ltd

NSE:VMART

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Q3 FY '23 Earnings Conference Call of V-Mart Retail Limited, hosted by ICICI Securities. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Varun Singh from ICICI Securities. Thank you, and over to you, sir.

[Varun Singh, analyst]

Yes, thank you, Michelle. On behalf of ICICI Securities, I welcome everyone on the call to discuss third quarter results for V-Mart. We feel thankful to the top management of V-Mart for having provided us this opportunity to host the conference.

On the call, we have Lalit sir, MD and CEO of V-Mart; and Anand sir, the CFO. So with that, I request Lalit sir to please take over the call and proceed with the conference.

[Lalit Agarwal, executive]

Good morning. Good morning, everyone. Once again, thank you so much for coming to this call early in the morning. I hope everything is fine. Right now, I'm speaking not from India. I'm speaking [indiscernible] some executive management calls. And I'm very [ back in some university ]. But anyway, good, I think this is a good time for being seen. Sunshine is coming back. We are now able to see inflation coming down. We are able to see consumer confidence inching back once again to the positive side. We are able to see the mark consumer also somewhere coming out of that shell a little bit. Still there are concerns and still there are areas where this mark consumer is still worried about, still the whole confidence level or the confidence indexes still lower. The doves have started coming back. People who have migrated are once again back to their cities and towns where they originally used to work. They're back in employment.

So all of those I think there is some positive risks sign that we are able to see, which shows the path that things will get improved over the next quarters. And that's what we expect and that's what we hope. But yes, definitely, things have not been as good as we thought to have become, both from the consumer perspective and inflationary perspective, as well as the confidence and the perspective or the seasonality perspective also. So we have seen all kinds of situation coming in. This is the complete year, this calendar year is going to be a little more dramatic year that we are -- we will witness because of the elections coming in next year, where the politics hovering around lot of areas, lot of the stuff -- areas can get disturbed at times.

We could see some political activities getting heightened up in certain states, which happens just before the election because of the regional or what we call the religious-led things which happens or maybe something little bit formal. So we are watching very closely all of those. We believe India stories is really doing good. A lot of move that India has brought in is bringing in a lot of confidence on India. And Indians in the industry, in the consumers, we are able to see their formalities that have been changed. So I think all of those looks good from a future perspective, from a long-term perspective. And definitely, at this moment in the short-term perspective, we are seeing some -- still if you compare with the COVID season income, some kind of low sizes on the actual recovery or growth over those recoveries.

So -- but yes, we are getting for all of those. But now I think most of the industry retain, most of the people in retail are -- they are upswinging on numbers. Now almost have been sharpened. The rush at malls and rush at those branch shops, I think somewhere that has also got toned down a little bit, but still, we are seeing a good swing, still there in the Tier 1s in the meters. We are still seeing that total consumers assuming still better than the GFCs.

So on the competition side, I think most of the competitors have been positive on store openings, have been very aggressive on their skills and promotions in the market. So the market has been quite charged up, I would say. And we are going to see a lot of new good things. We're able to see some special schemes in the market. So things are activities on which is making things interesting, both from the value giving perspective as well as the brand perspective. So at the value giving perspective, I think good signs have been seen on the recovery from most of the retailers, both coming -- I mean people have tried multiple things. Some retailers have tried bringing down the prices to attract customers. But I think people who have been able to focus on processes, who have been able to focus on the customer team, are able to really get the benefit more out of it.

At V-Mart, we definitely continue with our thought process on that endeavor on integrating all the 2 businesses that we have got into. We are clearly very bullish about the LimeRoad business. Still, the last quarter, we got maybe some -- from there around 50 days of our operations. And within that, some -- we are still on the integration mode. There are a lot of change management that is coming up in terms of the main change that has happened with the company. And so lot of those issues are still on -- still there are areas or there are partners where those agreements, main change agreements are still to happen. So like Facebook and Google and AWS. So there are those issues which are still continuing. But we are -- the biggest thing -- biggest positive news that we see is the team is very intact. They are really motivated charged up business, and the business confidence index has improved. The confidence index amongst the vendors have improved. We are able to see good traction, and once again, a lot of vendors who are on the marketplace, they are coming back on those marketplaces. Their loss trends are also coming back.

We are able to see a lot of new development happening on the technology. Definitely still a lot and a lot of work to be done. Still I think we haven't focused highly on the footfall creation and all of those. We still want to work on those. We are trying to stabilize those all those stuff. Yes, but integration between the V-Mart technology and the lines of technology, the work is on. Some part of that has been contributed. We should be -- we have started doing pilot on the omnichannel pieces as well, the earning from the stores. We have started doing pilots on those. I think a lot of those areas are to start yet, but there are some areas of improvement that we need to do. And there will be a lot of continuous improvement that we need to do because we really want to create an experience, a digital experience for the customer, who is still coming down to our store and then shopping, how do we mix them and see us towards digital as physical. That's the area that we are working on.

On the other side, our infrastructure development, our wearable development is also changing. We are almost 70% done with our warehouse development. We will be watching -- again we will have another 2 to 3 months or more so that we will shift to that -- to main shares. That's coming up very well. Definitely, we are -- we invested a little heavy on those, and then we got done in sort of looking at an expansion point of view, and that should really give us a real capability but at a better addition in terms of speeding up the turnaround time from the warehouse to the stores and the domestic facilities.

So all of those are really happening good. Digitalization, even at V-Mart, a lot of analytics based reports, reporting work on those -- the work with the consultant that is going on is happening really very well, but clearly it is getting realigned on the supply side, and the merchandising, design, sourcing. A lot of those new developments have now started coming on place. And then we are able to see some -- I mean, initial hiccups and initial whenever they are regrouping and there are reallocation or organizing structure, we changed and new departments have been created. There are good dilution which starts happening. We will see, but have to bear with all of those. We will have those issues coming in from the retailer. But yes, I think the best part is the plan that we have. We are coming out on the same plan. We have started implementing most of the areas like -- from the sourcing of average directly from the nominating to the vendors and then designing most of the designs internally by a design team. So great collections are being expected in this summer period.

We are really working on the real low prices products where we were trying to provide quality to the customer, which we've never seen on. So we have created a lot of work on those customer remarks, customer segment, which got lost somewhere in the initial part of the year, which we try to regain back both growth in this last quarter as well as in the future quarters. We are trying to bring them back into the main trail. So by lowering our ASPs, by really focusing very highly on those consumers who have really got impacted because of inflation and the inflationary pressure. So we have really done that and we even launched that very nicely through our ASPs and this quarter was also very -- almost flat. So all of this, I think, is working positive, and the margins will definitely be a little pressure that we will see because we really want to, first of all, provide the real value to our customer and work on that.

Southern India integration, I think, is happening good. A lot of better developments are happening. Last quarter, we saw a growth over the previous year. But yes, I'm still clearly not too satisfied with the kind of loan that we can do versus what we are doing. Still that understanding that we develop in the southern part of OEM market, we need to polish that up. We are working on all of those. That market is definitely demanding, and we will definitely upgrade and keep our quality of inventory, our patents, our fits, our sizes. And all of those are definitely going to -- I mean all of these additions into the company definitely going to overall upgrade the merchandise quality of our product offerings that we do.

So I think a lot of things are happening. Customer loyalty is another area that we are focusing very heavily on, how do we create, or how do we have an extra frequency of customers who come through. We are seeing some positive responses coming in out from all of those efforts that we have taken up. Digital advertisement has been quite actively engraved in our team, and we are focusing very highly on those.

We are able to see some youngsters walking back, and now we're able to see themselves now coming into our stores. Because the colleges have opened up, we are there in the digital space, a lot of personalization reviews are being prepared. So I think a lot of those activities, both from the physical store perspective as well as omnichannel perspective and landlord perspective. We are right now running both the channels, which is the vmartretail.com as well as the LimeRoad. So all of those are collaborating into the business. We still need to really settle -- things get settle down and we want to coordinate and create those synergies of digitalization of technology systems, of products, of the strength that V-Mart has, how do we use that in multiple other areas. So we are very positive, definitely. A lot of new things are happening in the company. So people are very busy. I really give kudos to the team that they have been able to manage such a complex environment very nicely.

We are able to see streams in the seasonality because of the climate change in winter. Wear has been fairly okay, we're still not be able to have the best winter that we could have expected this time. So there are those external environments, which will definitely make us more agile, and we will have to really make our systems and our processes a little more ready for these kind of smaller disturbance, which would come in. So definitely we still are -- have a little higher inventory. We are working very hard to bring down the inventory level.

So all of those, I think Anand will give you inputs and then let's wait to hear from Anand, and then we can answer your questions. Thank you.

[Anand Agarwal, executive]

Thank you, Lalit, and good morning, everybody. Let me take you through some of the key highlights from the quarter and then we can open the session for questions. It's been a very big and very hectic quarter with an acquisition, big festive season and winter and the marriage season. Traditionally, quarter 3 is also our biggest quarter. But YTD quarter 3, we also tracked our highest ever sales and look forward now to closing this financial year on a new high.

For the quarter, sales grew by 12% year-on-year, with like-for-like growing by 1%. Both V-Mart core business and Unlimited had positive like-for-like on a stable base of no COVID overhang in previous years.

ASP remained flat as a result of significant corrective measures taken to bring back economy pricing and tweak the product mix to attract low-income customers, which have shied away from buying at least at what we have seen in the last 1 year or so. Tier 1 markets continued their growth journey and outperformed Tier 2, Tier 3, Tier 4 markets, reaffirming the K-graph recovery that we have all been seeing in the sectors where the rich have remained largely unaffected post-COVID while the poor have been forced to compromise on consumption with inflationary impacts in all parts of life.

Unseasonal heavy rains in October resulted in one of the wettest October on record, and high average temperatures resulted in one of the warmest Decembers in last 122 years. Winter merchandise sales as a result got pushed out to January bending December numbers. The shift of sales from December was realized in January though, improving growth for January.

We opened 15 new stores in the quarter, 1 in South India under Unlimited brand and 14 in rest of India, and also closed 6 nonperforming stores, all under V-Mart in North. Taking the net tally to 414 stores pan-India, out of which 80 are in South.

All the new stores, especially in South, have been performing steadily and in line with the established V-Mart business model at similar margins as that of a normal V-Mart store. And in fact, 20% to 25% higher SPSF than the legacy Unlimited stores. While we still wait for these new stores to complete at least 1 year before passing the judgment on the successful rollout for South in terms of new store throughput, but yes, definitely, the team remains very bullish on continuing the expansion plan in South under the Unlimited brand.

There was a strong push on increasing online sales contribution with the acquisition of LimeRoad. Although it's been integrated only for less than 2 months now and still going through a stabilization phase, some tailing issues, but the business does look very promising as we cap it up for higher growth once the basics are back in place. The revenue from marketplace is only the commission that we earn from sellers on the platform and not be full -- the net merchandise value.

Coming on to the gross margins, the gross margin at 35.4% were 40 bps lower than last year, and also one of the lowest in the last 4 to 5 years as a result of a conscious effort to improve price offering for the value customers. We have talked about this in our last quarter call as well, and we have made that change or tweak. We reduced some price points to make the customers' offering more attractive. And this strategy has worked well as it helped pull in sales growth. But yes, at slightly lower margins.

There has been a significant impact of increasing cotton prices in the last 1 year, and although yarn prices have come down from their peak by 30% since September, but they are still 30% to 40% above pre COVID levels. The winter stocks did not get the benefit of any lower yarn prices as purchases are booked at least 2 to 3 months in advance. Going forward, there may be a marginal release available in summer '23, but as is the practice, it will be passed on to the customers in entirety as we would want to remain very competitive in the value retail pricing segment.

Coming to the expenses. The expenses for the quarter include an amount of around 36 crores towards the spend on online business, which include the complete OpEx for both vmartretail.com and limeroad.com. The 36 crore expense also includes 12 crore onetime expense towards integration and other manpower-related costs for the LimeRoad business as it starts to get integrated into the main business.

Excluding the online business, the expenses for the quarter grew by roughly around 9%, 9.5%. Historically, online only constituted vmartretail.com and marketplace offerings with expenses averaging around 4 crores to 5 crores per quarter. But now with a more focused effort to make the online business through an induction of LimeRoad, this will slightly be bigger.

On a go-forward basis, we are very confident of establishing both the acquisitions in South as well as LimeRoad business as the biggest growth drivers for the organization and remains committed to invest in the journey to reach these sustainable and profitable destinations. While South has already begun well, we will need to give some more time and sources for LimeRoad to start delivering.

Coming to EBITDA, for the V-Mart core business, EBITDA for the quarter came in at 17% plus with Unlimited also in very close vicinity. LimeRoad only had a little less than 2 months in the quarter and as planned, is still in the stabilization and revival phase. As I mentioned, the business revenue in LimeRoad consist only of the commission earned from sales facilitated for sellers in the marketplace, while the expenses largely consist of marketing, logistics and technology costs. Once the business has started to stabilize, we will be sharing more details around its operations. For V-Mart, considering the initial OpEx plan around the integration, the EBITDA came in at 13.3% for the quarter.

Coming to inventory. The quarter closed at 767 crores, which was at 106 days of inventory, slightly higher than our target due to a bit of late winters. Winters have been delayed and winter sales slightly shifted into January, leading to slightly higher closing inventory than planned. But that has been recovered in January. As stated in the past, we are having slightly higher inventory per store in South to explore newer categories and higher sales.

On the CapEx side, we've spent around 125 crores so far, largely comprising of spend on the new warehouse, which is on schedule to start operations by end of March in this financial year itself. Other CapEx included spends on new stores and refurbishment of old stores apart from some IT-related expenditures. There has been some marginal utilization of working capital limits because of this higher inventory buildup and other operating costs. I think the working capital utilization would be the tune of around INR 40 crores to INR 50 crores.

On the go-forward basis, I think on the outlook, we remain fairly bullish on how the market has to perform. We are still going on the news for opening plan as originally planned. We've opened, I think, 40, 41 stores so far this year, and I think we should be looking at closing the year by around 55 to 60 stores with some stores also getting opened in South.

The growth plan for Unlimited also remained fairly strong. There are -- as Lalit mentioned, there are some more improvements which are lined up for Unlimited, but the team remains very buoyant and very bullish on expanding that business as well.

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

[Operator]

[Operator Instructions] We have the first question from the line of Nihal Mahesh Jham from Nuvama Wealth Management.

[Nihal Jham, analyst]

So the first question was on the Unlimited part. You mentioned about the sales per square feet being 20%, 25% higher. So just to clarify, this is for a like-to-like store or the like-to-like stores that are in existence versus the pre COVID number. That's the right understanding?

[Anand Agarwal, executive]

So Nihal, the 20%, 25% higher is only for the new stores. The point that I was trying to make was that the new stores that we have opened in South are performing very well in line with the original V-Mart format, which is open stores in Tier 2, Tier 3 towns, 8,000 square feet with low rentals, low OpEx and thereby delivering higher throughput. So the sales per square feet in South is very comparable to a new store opening in North, and that gives us the open promise that we can expand more there.

[Nihal Jham, analyst]

And possible to share for the legacy stores, what is the kind of performance versus before the acquisition.

[Anand Agarwal, executive]

So it is lower than main V-Mart business, but it should be at around INR 500, INR 520 per square feet there.

[Nihal Jham, analyst]

Sir, the second question was, you alluded to the margin for the core V-Mart business being around 17%. I am assuming that when you're looking at the business, the INR 36 crores or something, you're counting separately, you're not aggregating to any of the businesses, right?

[Anand Agarwal, executive]

Yes, that's correct.

[Nihal Jham, analyst]

And just a related question was, if you could share the LimeRoad GMV for this quarter, if it's possible. The run rate, I mean, not for the quarter. And what is the kind of EBITDA impact while you highlighted the 15%, 20% number earlier, if there is any update to the same after you've integrated and looked at the business in more detail.

[Anand Agarwal, executive]

Nihal, on the operational aspects of LimeRoad, we will start sharing some more color around that once that business is stabilized. We are still ourselves in a learning mode and trying to understand how this business shapes up. It will be slightly be premature to start sharing current data because it is still getting stabilized. On the EBITDA percentage share for the spend or the investment that we will do on the digital side, including LimeRoad, we still remain similar at around 20% of the EBITDA that we had stated in the past.

[Operator]

The next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund.

[Pankaj Tibrewal, analyst]

So my question is that, in the last 1.5 years, we have taken few capital allocation calls. One is Unlimited, LimeRoad and the distribution warehouses. Something which we wanted to get more clarity was on the return on capital. We have seen V-Mart very closely watching the return on capital for a very long period of time in the history, and that separated us from the rest of the retailers. But over the last couple of years, that number has been diluted meaningfully. Can you give us some sense on the road map for that recovery to happen? And when you look back on all the capital allocation decisions, how do you make sure that most of them were in core with what we might use to operate at? And when do we go back to that 15%, 16% which used to be a 40 for a very, very long period of time? So that's more 1 question on the strategic, which will, over the period of time determine the shareholders' return.

[Lalit Agarwal, executive]

Thank you so much for asking this question. Definitely, in the last 2 years or 1.5 years, we have gone out to spend more money, which is unlikely of what V-Mart does -- because we are able to see a lot of future capabilities and a lot of abilities in the market and potential of the market. You all understand the kind of risks that we are basing in terms of 2 acquisitions and allocating capital on those. So you especially very clearly where the store addition in South, which went down to that. Suddenly, I mean, as the UL business is it's taking time to come heavier to what V-Mart business was. So the capital -- the return on the capital from that business, which take a little more time to come back. And then if you can go to the LimeRoad investment, definitely, this is something very long term, and this is futuristic, which it will require still more capital as we speak and as we go ahead.

So making it very clear that expecting very good capital return or a positive capital returns from this business is going to be difficult because this is definitely creating capabilities for us to cater to those millennial customers with these new customers. But we will have to invest more in this business and which is a leader for the future of segments. So we will definitely want to keep investing in this particular business to acquire our competencies on the digital side.

And as far as the new infrastructure capital allocation is concerned, which is the warehouse capital location. We are aware that we have -- we are building -- after 8 years we are building more efficiency on the infrastructure development. There also we've gone ahead with building our own infrastructure, which is something that we have never done in the past. And we will definitely find out a way to try and see how do we use that infra more? And then how -- and can you use this capital allocated. So that our overall return capital hasn't go down. So as of now, we will see a little more stressed ROCE for the next, I would say, 2 quarters. But continuously we'll see improvement in those recurring capital employed coming up.

Really to also -- very, very accurately and then lightly manage our inventory where another initial capital allocation is happening, which is also not something which is still in the numbers that we reach. So we will need to -- we are working and the markets are also coming back and things are -- things will come up positively. And most of our bets that we have taken for our future growth should bring in more results and should bring this wider scope of market, both from the physical as well retail perspective.

[Pankaj Tibrewal, analyst]

And we just hope that V-Mart gets back its module on the return on capital, which was there for a long period of time.

[Operator]

The next question is from the line of Percy Panthaki from IIFL Securities.

[Percy Panthaki, analyst]

My first question is on the sales per square feet. So last quarter, that is Q2, we were about 8% -- sorry, 10% to 11% below the 3 years before that 2Q, so 2Q '19 basically -- sorry, 2Q '20 versus 2Q '23, we were 10%, 11% below. And we were expecting that there would be a gradual sort of recovery on this front. Q2 did see a good recovery over Q1, and we are expecting Q3 also to see a recovery over Q2, but in stuff coming down from a minus 11% to minus 7%, minus 8%, et cetera, now we have gone to a minus 22%. So clearly, now, I cannot see the direction of the recovery, and I don't know how to really look at sales per square feet going ahead. Now given that we are in a completely normal situation, COVID has been passed since almost a year or so. I understand there is some demand weakness. But barring that, we are in a completely normal situation, and we are still 22% below pre COVID, and no company is lagging in such a huge way. So can you give some idea on how do we look at sales per square feet going ahead?

[Lalit Agarwal, executive]

Percy, I think it will be nice for you to have a separate call with Anand to understand because we have also opened up a lot of new stores, which have just added the square feet, but it has not given as the complete area, number one. Number two, the sales per square feet of the southern business Unlimited business still at a lower level. So whenever you see that comparison, you will see it different. Number three, the Q3 this time, as we have seen fun festival shifting from October to September. So some numbers went into the last quarters, our numbers are coming up in this quarter. There is some shift that we will see. So we should see YTD SPSF recovery. So yes, I mean, definitely we have also experimented on certain big sales store in the eastern part of the country. But also -- I mean, definitely not bringing on the sales per square foot, but this is constant.

So some of these areas, I think definitely, the LimeRoad addition itself will put a pressure on the sales per square feet number that we see from this perspective. Otherwise, I think we are -- we will be able to see the like-to-like sales is flat from the last year, but still from the pre COVID levels, if you are still comparing, there is a pressure which is still there from the pre COVID numbers, which we hope to see positive side. And if you're comparing with those bigger material Tier 1s, kind of store mix, sales per square feet. And definitely, the percentage growth there versus the percentage growth in our company will be still seeing some pressure there. So things are coming up into the positive direction. We should be able to see them getting normalized even in the next quarter.

[Percy Panthaki, analyst]

Yes, so exactly, sir, the last line is what I wanted to focus on. The direction. So when you're saying things are going in the positive direction, the numbers are actually telling a different story and things are actually going in the opposite direction instead of a minus 11.2%, 11.3% kind of growth that we saw in 2Q, we are today at a minus 22%. I can understand if the pace of the recovery is slow, I can understand that small towns are there, they are under pressure. UP, Bihar is under more pressure than the rest of the country. I understand all that. But why is the direction actually reversing? That is my question.

[Lalit Agarwal, executive]

Percy, as I said, there is a seasonal shift also. Please don't compare quarter-on-quarter. Durga Puja this time, the whole festival of Durga Puja and Navaratra were in September. Most of the consumption shifted into September. That is why those averages will -- we will be able to see a little lesser wear and little higher -- will be more steep, yes. So please try to see both the products combined. If it is -- quarter-on-quarter -- at times these quarters are very typical quarter, delicate quarter, where even a slight 5-day, 7-day shift from the -- this particular festival from this month to this month makes it difficult for you to understand. So it is just a calculation understanding issue, not actual delayed performance.

[Percy Panthaki, analyst]

Understood. Secondly, if you can give some idea in terms of the differential between the unlimited and the organic business in terms of sales per square feet. I believe 1 or 2 quarters back you had mentioned that at the time of acquisition the differential was 20% and then it came down to 15%. What does it stand at currently?

[Anand Agarwal, executive]

Percy, Anand this side. I think that number still remains very similar. While both the markets have been growing and both the market has seen positive like-to-like, but the differential in the sales per square feet still is at around 15%, 20%. There are -- the silver lining, although is that the new stores that we are opening in South are delivering much higher sales per square feet than the legacy Unlimited stores, and that is a very good positive sign.

[Percy Panthaki, analyst]

And lastly, going ahead, if you can give some idea on what internal targets you have for FY '24 in terms of EBITDA margins and in terms of sales per square feet?

[Anand Agarwal, executive]

Percy, it will be difficult to share. All I can say is, there are 2 statements that we have said in the past. One is, the total growth should be in line with our historical 7, 8, 10 years CAGR, which is around 20%. EBITDA traditionally, whatever we have been, I think there's around 15%, 20% investment that we will do on the online business. So we'll have to work around those 2 statements.

[Operator]

The next question is from the line of Shirish Pardeshi from Centrum Broking.

[Shirish Pardeshi, analyst]

If I look back 9 months, we started a year with a lot of hopes, COVID settled down. And then somewhere in the June, July, we realized that the price needs to be dropped because there is a slowdown in rural economy. And then come October, we had flatter than situation and now we had delayed winter. Two data points what you have shared, that our footfall growth is 13% up while the conversion rate has fallen to 55%. Maybe I'm looking at this number for a little longer time, and that's why a bit surprised or rather worried that is there more thing to do with the escalation in the competition profile, or generally, there is a structural shift that the mass consumption is still not picking up and we will face this pain another 2 or 3 quarters. So your comments on this.

[Lalit Agarwal, executive]

Yes, you are right, Shirish. I mean definitely, there is a pressure which continues, and we will -- we are putting our efforts. And we are also not trying to work too much on the shorter-term approach by giving a lot of incentive to the customer by calling them and converting them at a very, very low incentive. So we are trying to build that standard because we want to walk the competitor part. So there may be -- and then what we are seeing is the correction in the conversion rate, what we're seeing from 2019 to now. I think -- or maybe last year to now.

So last year to now, I think the reduction in conversion, you will see because there was a consumer behavior that we've watched during these period. And where the footfalls were very low and people who came in used to buy and most of the customer used to buy because of the COVID fear, if you remember. And so which I think is coming back to the normalcy. And then people have now increased their bill sizes, but the number of the conversion is at a fair level. And -- 58% and more than we get there is a very fair number to look at and because of the South. In South, the industry is at a conversion rate, has been very lower than the -- sizes have been very high. So all of those, I think that's a behavioral shift that we are watching just after COVID could now.

I think from the consumer perspective, definitely, things are improving, and we are seeing pressure not only in our industry but in also other industries. Still compared to pre COVID, which I said in my opening remarks, which is improving there day by day, and I think this consumer segment is a real customer or those [ semi-earning ] customer that we are focusing on. We should see more spike coming in the future quarters.

[Shirish Pardeshi, analyst]

Lalit, I agree your comments, but I know you always remain hopeful for the recovery. But when we look at the competition angle, is that -- which is worrying you and if that is true, what are we trying to take measures to improve this? Because the other thought is that, if the things are not in our control and there are external factors, why not to consolidate the stores and keep the pause of store opening?

[Lalit Agarwal, executive]

No, I think I mean, definitely, the markets, which are the new markets, we are taking the decision to develop the new markets for the long-term perspective. And these store openings are not for the -- for a shorter term time. We will continue providing work to that particular period. If those new stores performance would have taken a hit, we'll have thought over it. But I think it's just looking at from the -- from the previous 2 years numbers, and we are comparing those 180 stores, which are 200 stores from a like-to-like perspective, I think we will have to now come up and look this new scenario and start comparing with the last year and then see how do we go from here.

Definitely, the market has densified mode. We are seeing more competition. There are more outlets to visit for the consumer. There are some market share, which are being occupied by them. And so which is there, but I don't see a great heightened strategic move from them in terms of the customer acquisition, and in terms of the customer moving because of the fundamental offerings, which is provided by the retailer. So there will be some tactical moves which the retailers will do and we will try to get some consumers into these stores, which is going to happen. I think the newness effect will certainly dry down over the period, and we will be able to establish our relationship with this customer and the new customers that are going to come back to us.

[Shirish Pardeshi, analyst]

My second and last question to Anand. I think some quarters back, we were saying...

[Operator]

Pardeshi, I am sorry to interrupt. There are many other participants who are waiting for their turn.

[Shirish Pardeshi, analyst]

I'll just spell out the question, later on they can answer whenever they get time. So my question was to the Anand's comment in the past that we were trying to get the inventory normalized. Understandably, this quarter, we had winter, which is prolonged and the inventory is around 106. So maybe in next 4 to 5 quarters, where do you would like to settle given the context that our warehouse will be operational by March end. So maybe any qualitative comment you can offer later on.

[Anand Agarwal, executive]

Thank you, Shirish. Let me just quickly answer that. So the long-term trajectory for inventory days were over around 90 days that we have maintained in the past, and we will work towards that.

[Operator]

The next question is from the line of Resham Jain from DSP Investment Managers.

[Resham Jain, analyst]

Just 1 query on the inventory. So if you look at the modern retail stores, all the stores have -- I mean a lot of competition has moved to the display mechanism, which is hangar model, where the piece per -- or the piece per square feet has been much lower compared to our style model, where we used to stack floats on the top of each other. And that has also led to a much lower kind of -- employee kind of cost as well. So is there any change in our display mechanism also in our old stores? And how are the new stores being built? Can you just help with this?

[Lalit Agarwal, executive]

Resham, definitely we are not trying to look at the competitor and trying to learn, but we build up from them as well. And there are some changes that we had already initiated, if you remember that, few concept that we had launched. But still the kind of customer segment that we target to, because these are markets and these are little lower segment customer compared to the competitors that we are speaking of. We believe that these customer segments still are not too organized and still are not easy to handle. And they need an extra variety and little higher inventory, and the kind of model that we have built that also ropes in these things.

But yes, I hear you what you are saying, and we are working on reducing the inventory per square feet, both from retail perspective as well as inventory perspective and giving a little more clearer display to the consumer. So a lot of work has happened in the -- in that area and trying to improve upon the benefit which what we're trying to talk about -- basically close per or units per square feet. That's what we are watching, and we'll be in good position. Thank you, and we will take care of it.

[Resham Jain, analyst]

But are new stores being built with this concept? Or they are also being at the similar model which we used to have earlier?

[Lalit Agarwal, executive]

No, I mean, the new store, definitely, as you said, a new concept. It is largely -- a large part of that has shifted into anchor-based product line. But still in the smaller part of India, a product which has been opened up and hanged, all product is being appreciated by the consumer, they feel that [Foreign Language] -- so there is still the cultural piece or expectation for the consumer that we have to manage in terms of certain product lines where they don't accept those open up pieces.

[Operator]

The next question is from the line of Mandar Pawar from Kotak Mahindra AMC.

[Mandar Pawar, analyst]

Sir, my question is on the price corrections that we have taken for our merchandise. If you can help us give us a point as to how much price correction that we have already taken in percentage terms? And compared to pre COVID levels, where this selling price will be compared to pre COVID?

[Anand Agarwal, executive]

We've not really just taken a price correction. There have been a variety of measures that have been implemented. So one is improving the product availability at lower price points, which had got kicks out because of margin pressures in the past. Second is some amount of improvement in the product profile, coupled with price correction at some strategic price points. And third is more around price laddering where we have also ensured better availability of product at strategic and key price points. So a mix of all of these is working to ensure that our ASP, if you look back versus last year, has remained flat. So it's a variety of measures, and the team is continuously working to improve on it further.

[Mandar Pawar, analyst]

So with your possible reduction that may happen on the yarn prices and government prices, do we expect our gross margins to settle and how much do we retain, how much do we pass on to the customer?

[Anand Agarwal, executive]

So that remains a very clear strategy for us. We have always been a honest price shop. So when the prices go up, we pass on the price to the customer when the price comes down, we again pass on the benefit back to the customer. So as I stated in my opening remarks, we are expecting some amount of marginal price release in yarn prices, which if get affected in summer, we will pass on that back to the customers, keeping the gross margins at a similar range for the core V-Mart business at around 32%, 33%, and for the Unlimited business at around 37%, 38%. Weighted average should be at around 34% in the medium to long term.

[Mandar Pawar, analyst]

And just 1 final question. You mentioned in your opening remark about the postponement of winter sales into January. Also I want to check if, along with that, was there any discounting on this which happened during December and whether that had any impact on the gross margins? That's my final question.

[Anand Agarwal, executive]

Not really, not really. We are not very heavy into discounting or promotions. And because there was a shift in climate conditions, the customer came and bought that product in January. If at all, there is more liquidation time, it will happen subsequently.

[Operator]

The next question is from the line of Tejas Shah from Spark Capital.

[Tejash Shah, analyst]

In your opening remarks, you sounded cautiously optimistic on demand environment. So I just wanted to know because we have been having this tone for a while. So let's say, if we have to see near term only, so what are you optimistic about and what are you cautious about, let's say, for the coming 6 months of the calendar year '23?

[Lalit Agarwal, executive]

Currency optimism, I said for the business is coming back in the consumer pulse -- the consumer pulse we are able to see some respite as if we compare quarter-on-quarter. And then we've seen quarter-on-quarter there are improvements that is coming up. And that's what we are seeing. And then I'm indicating more towards the consumer confidence in this time. And that's what is important to me. And how does that confidence grew up for the consumer? If the confidence comes up, the fuel factor becomes better, then they start investing on all of these discretionary -- so-called discretionary per clients. And that's what price the future sales of -- or a consumer even in India and in [indiscernible]. So I think we are seeing some hope that is built here. Still not exactly similar, but quarter-on-quarter we are seeing improvement, and inflation has come down. But still not to that level that the consumers have come out of the budgetary pressures that they had. So it is still going to take another 1 or 2 quarters, which we'll make it happen.

But the challenges we are -- definitely as I said, the challenges are also there. This is what we see the challenges. But the hope that our pricing that we increased our offerings that was available, we are doing all of those. I hope that the consumer will have got some benefit in this last quarter and consumers will get future benefits also in the next quarter. So they once again relay back and they start consuming at our stores. And that's what we feel we are optimistic about.

[Tejash Shah, analyst]

And then if I compare our commentary post-COVID versus per-COVID, there always used to be an element of hassling or growth mindset irrespective of the macro environment that we used to face. Now of late since COVID we are attributing most of our slowdown or challenges to macro issues only. So should we think that the bottom up initiatives, which we are doing are not responding anymore and we are at mercy of macros only? Or do you believe that this lot can be done at our level also irrespective of the macro environment to revive growth?

[Lalit Agarwal, executive]

Look, Tejas, you are absolutely right. Definitely by speaking, we will talk about some part of our growth. And definitely we have lot to do internal. And this is what I said both from the inventory management perspective, the new things that we are trying to offer, the new designs that we are trying to offer, these are yet to -- and the differentiated [indiscernible] that we have brought in, the BT adviser that we are trying to do. So a lot of work is happening at the company when we definitely internally talk and believe that if we are pointing one from the outward because there are 4 fingers coming back to us. And there are a lot of goals that we have to go because -- these are not the similar environment, but when the competitive pressure was very low time and competition in the market are also very low. So 1 there's a complication in the market. There are more stores in the markets which are offering unique -- there will be unique potential and -- who are definitely seeing more with more goals in the market.

So there are changes in the market. There is a higher opportunity for the consumer to visit both from the online as well as off-line perspective. So there is even a small shift in that will definitely fully affect us. And then, when there are growth concerns at the macro level, I think where those -- a smaller -- it's all about the 5% or 7% or 10% up down is what benefit and most capable of.

[Tejash Shah, analyst]

And Lalit, last one on this. So then outside, if I have to, let's say, evaluate after a year on that all these initiatives that you spoke about are working. It will reflect in which all top 3 parameters? Will it be inventory at store level or sales per square feet or SSC? How should I actually monitor as an outside that -- initiative that you spoke about are actually delivering results or not?

[Lalit Agarwal, executive]

Definitely, the sales per square feet is little bit later or even the like-to-like growth is indicated. So I think we should be able to do that. While we are doing some of the experiments that we're reorganizing these restructures, there may be some pressures that we will see in the inventory side a little bit, which could prevail, but we -- our endeavor and endeavor is to try and manage these issues also. That's what it is also a part of the project in trying to bring down the inventory management, however, better digitalized forecasting. Better consumer understanding which will result -- so that validation can turn out well. These are all working policies. These are all something which are rolling out. And then we should be able to -- I mean, that's the whole -- entire -- the effect is on the 360 degree that we should be able to create, which finally boils down to the ultimate like-to-like.

[Operator]

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.

[Lalit Agarwal, executive]

Yes. Thank you so much. I understand the kind of questions which are coming in. People are really concerned about our performance. people are able to see a little [indiscernible] and the change from our side. I definitely believe and we understand there's no hiding away. This is definitely a situation which continuously have been prevailing, and we have been regularly talking about it. We still want to maintain those positive nodes because we are motivated looking at the market. There are situations, there are challenges which can come in. We will not take some of similar or present weather every time, revenue bounces and we have those a little longer stretch of those, and that's what we are yet to fight for.

Fundamentally, we are becoming stronger. This is what I just want to really state the belief. Fundamentally, we are working on those key parameters where things has to be strengthened in a longer-term perspective. At a shorter term perspective, there will be some technical approach by the competitor or by us or not effective to us, which may deviate slightly on those. Investments that we are doing on the new initiatives will definitely the bottom line may not seem similar that we used to have, the ROCE will not be similar, have patience on those -- you have shown enough trust with us continuously for a period of time. We will definitely hold it up, and we will want you first not to be diluted, and we will keep it up. Thank you so much. We'll put our best efforts to prove whatever we do. Thank you, and have a great day.

[Operator]

Thank you, sir. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

[Varun Singh, analyst]

Thank you. Bye.