V-mart Retail Ltd

NSE:VMART

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to V-Mart Retail Limited Q4 and FY '22 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Percy Panthaki from IIFL Securities. Thank you, and over to you, sir.

[Percy Panthaki, analyst]

Hi. Good morning, everybody, for this Q4 and FY '22 results call for V-Mart. We have with us from the management, Mr. Lalit Agarwal, Managing Director; and Mr. Anand Agarwal, CFO. So without any further ado, I'd like to hand over the call to the management to take us through their presentation. And after that, we will have a Q&A. Over to you, sir.

[Lalit Agarwal, executive]

Good morning. This is Lalit Agarwal, Managing Director of the company. Thank you all for being here again. We are seeing good times coming in, and there is definitely a lot of hue, buzz and cry, a lot of traffic that we are able to see in almost all the cities all the towns. Most of the mobility is becoming normalized, and we are able to see a good chunk of people moving around across cities and across towns. And also people during holidays, and we are able to see schools and colleges getting opened up. So things are coming back to normal. People are definitely getting more focused on their work. People are getting a little more focused on what they were not able to do. Relaxing -- not relaxing a little bit or not think -- or bringing out time for the leisure right now. So this is the time to work hard. So that's what we see in most of the cities and towns.

But definitely, times are much more dynamic with respect to the job market, with respect to the overall inflation, with respect to a lot of external risks which has got involved post the Ukraine war. So I think even the customers or even the entire market is very, very agile, very, very dynamic, very, very reactive, if I would say. So people are very, very aware or very aware of what is going around in the markets. They are definitely taking much more informed call in terms of the kind of manufacturing that the vendors should do, the way they should procure, at the price they should procure or the way retailers are opening stores and then way the consumers are reacting and then the consumers are also not going all out. But yes, there is a watchful approach that we are seeing from the consumer end.

Largely, post the -- I mean in the last quarter, I think we've got a lot of business back post Omicron because the first month of January, we saw Omicron dampening the spirit a little bit. And that came back a little fast in the month of February. But yes, it did impact almost 35 to 40 days of mobility and movement in across cities. So -- but yes, I think largely in the last quarter, we saw a good festival of Holi, and Holi was celebrated very well for the first time in the last 2 years. And we also saw Eid getting celebrated in the month of May. And so April was -- we were able to see some good crowd at the store. We were able to see a lot of movement in the shopping markets. So I think things are coming back.

Overall consumption is getting a little impacted because of inflation. There is a pressure of inflation in the market. Especially people who are below INR 25,000 per month, they are feeling the pinch of the inflation. There is an additional dent of somewhere between INR 2,000, INR 3,000 on their pocket, which is almost turning out to 10% to 15% of their earnings. And that was primarily is what they would have saved or they would have used for their discretionary pieces. So there is some level of some level of de-motivation for that particular lower part -- lower strata of the customer segment. And we are able to watch that.

I did visit a lot of markets. I did go to some of these towns. Towns where we are seeing where the GDP -- per capita income is lower, we are seeing a much higher impact there of this particular inflation. The tier 1s and metros have seen a better results or we are able to see much more aspirations coming out or much more consumption coming out in that particular cities. Some of the Unlimited stores that we have in the Southern India, we also saw or got the results -- good results in malls. Mall stores are doing good in these particular times.

So overall, what we are seeing is the K graph continues. The richer is becoming -- or rich is becoming much more richer, and the poorer is trying to feel specialized and becoming more poorer in his thoughts. Psychologically, that's how situation is. But yes, looking at the farm income, looking at the way farm income is supposed to grow, looking at the kind of harvesting, which is coming in, the good monsoons that we are listening, we do expect that scenario to change a little bit going forward. But yes, the farmers would be a little happy. But still to come back to the rural consumer base, it will take some time.

We have seen a lot of action in the retail market. We have seen a lot of organized retail penetrating in those particular territories or most of the areas we have seen a lot of movement coming in right from all the conglomerates of India. And some of the good, interesting models have also come in. Not everything is getting so much benefited, and not too much of success is being seen, but yes, still, there is a lot of property acquisitions which is happening. And even the online continues to do good. Regional retailers have been fairly growing. Some of the retailers -- as we said earlier, some of the retailers have really mellowed down, and they have stopped opening or they have closed some stores.

But there are a few other retailers who have still continued to open more stores and are still continuing to open, primarily in the Northern part of India, primarily more in Uttar Pradesh, Bihar, is what we see some penetration coming in from their side. But largely, other retailers -- that larger retailers are being seen across India, whether it is South India, Rajasthan or Gujarat, we are seeing all kind of retailers coming in. So -- and most of the retailers are also sizing between 6,000 to 10,000 square feet. So that's also good that this model has got fortified, this model has got verified, and this is what everyone wants to play on.

And so I think everyone is feeling the pressure of -- if we compare pre-pandemic level, there is a quantitative growth. There is an insulation in the product lines that we sell, as we have already told. So we are seeing -- witnessing almost 17% to 18% of higher ASP over the last 2 years. So that is also impacting the customer to a certain extent. The products are looking a little costlier, looking a little more pricey. So -- but yes, we are trying to work on our manufacturing side. We also took up the price rise as it is. But yes, we are doing a lot of small, small schemes, promotions on the lower price point product so that we are able to retain the lower customer base. And that's what we are trying to understand because if those customers have to shop, their pocket can't get hurt. So we will have to -- we have done a lot of enough work now to try and penetrate into that customer base.

We've also seen an additional jump in the average bill size. So that is also giving us a sense that people who have some money in the pocket are coming to buy and are coming in good numbers. We are also seeing good loyalty still coming in. So -- but yes, there are a few people who have lost some part of income in the past, either last 2 years of pandemic or even this particular time, is struggling to shop or struggling to buy more. So effectively, we still believe the consumption surely will come in, will continue. This period where the media is shouting loud voice on inflation and a lot of work, so people are anticipating a risk on their pocket, risk on their incomes. So that is being seen. So people are not going all out to shop and especially the smaller part or the lower part of the strata. So that's how it is.

But overall, I think the job market, as we said, is also very, very boiled up. The employee levels are for us we have been able to retain, but yes, the pressure of attrition is still there. And there is a lot of movement which is happening both in the -- all in the merchandising, digital, all of those sites. But yes, we have continued, we have a company that has got really the Best Place to Work award. So we will try and do best whatever we could do to attract talent and retain talent. So that's how we are looking at it.

Overall, our CapEx plan continues. We will open up -- keep opening our stores. Our confidence on the market remains very good. Unlimited, we have been able to do a fairly good acquisition. Unlimited has been fairly good both in the aspect of maintaining its number on the P&L side as well as the revenue. We have still not been able to see a large growth there. But yes, a lot of V-Mart products have been launched in those stores. We are able to see a change in the customer profile.

Customers are loving those products. A lot of products are being loved. Some of the products that we are also experimenting, wherein we are trying to launch it to the market. And we are doing a little more higher inventory so that we are able to do all those pilot understanding of that market, what will work and what will not work.

So we'll continue to do all of that. But yes, I'll first of all ask Anand to take you to the numbers, and then we can talk over the question-and-answer session. Over to you, Anand.

[Anand Agarwal, executive]

Thank you, Lalit, and good morning, everybody. It's lovely to be back with everyone after almost a quarter. It's been a very good recovery this quarter. And with a fresh new financial year ahead of us, we really look forward to an exciting next phase of growth for V-Mart. But first, let me take you through some of the key highlights from the quarter, and then we can open the house for questions.

So as far as the quarter is concerned, quarter 4 traditionally is the smallest quarter for any year, and this year also not very different. With a slight resurgence of the COVID Omicron variant, there was a slight impact in few markets, particularly in Karnataka, Tamil Nadu, Jharkhand, Bihar, apart from some isolated areas in other states, which led to small disruptions here and there. But the silver lining was that the impact was curtailed in the fire end of Jan to around mid of February, sparing the big festive period of Holi in March. And as such, we could see a good traction in sales as customers also came out in good numbers after not being able to celebrate any festivals or occasions for almost 2 years.

The other big impact, as Lalit also mentioned, was the significant increase in raw material prices, particularly cotton yarn apart from the inflationary trends in all parts of the value chain. As a result, we were forced to pass on the full increase in cost to the end customer, and our pricing increased by almost 15% to 17% if I compare over the last 2 years. Inflationary pressure, on one hand, made the disposable income smaller for the customers and also made our products slightly expensive, leading to a decrease -- marginal decrease in quantity. But overall, I think we've seen growth because we also see a lot of growth coming in from South getting added.

But our comparable V-Mart ASPs for apparel almost grew by 17% in the quarter, while at the company level, it might look abnormally high at around 26%, keeping in mind the base impact of last year and also the addition of the Unlimited business. On a throughput level, sales grew by 30%, supported by the 73 new stores from South India, which contributed 16% to the sales mix for the quarter.

The footfall grew by 10% with average bill size growing by 17% for V-Mart stores. While at the company level, the overall increase as I said was 26%. This ABS increase should remain marginally higher for the South stores for some time till we get the full integration of inventory done. In any case, the pricing will be slightly higher in the South India stores as we try to see slightly differentiating merchandise and also slightly differentiated pricing to take care of the higher operating cost structures in South.

Now on the margin side, with increased raw material pricing, the company decided to pass on the full impact on to the customer, resulting in almost negligible impact on margins so far. Lower discounting and promotions, as we've also stated in our last 2 calls, the net position remains very healthy because we have very less tariff for old inventories. And also, the USS period was not a very strong period because there was a fear of Omicron coming in, so there was not a big amount of discounting that was required or we did. And as a result, the margins remain quite healthy.

And also as a mix, South India operates at a slightly higher margin profile. And therefore, the gross margins remained quite healthy at around 34.9%, which compares very favorably with a 30% of previous years. The high increase in margins for quarter 4 is actually not really sustainable in the long term. We -- as we have always maintained, we will pass the gains, if any, to the customers by using it to offset either the inflationary cost pressures on the sourcing side or reducing the prices in future. In any case, the gross margins for South India, at least for some quarters or at least a couple of years, will be 3% to 5% higher versus the rest of India with differentiated product offerings to offset the higher operating cost structures there.

Coming on to the expenses side. Almost all costs faced significant inflationary pressures, and they continue to do so. Rentals in any case are higher from last year owing to the higher cost of South India rental structures and also reduction in rental concessions which we availed during previous years. All full concessions are now over, and the cost structures are now back to normal at all levels, in fact, with higher inflationary trends. Expenses also include a marginal OpEx investments towards expansion of the online business, which has now reached 2% run rate in the revenue share.

As a net summary, quarter 4 ended with an EBITDA of INR 50 crores, which was up 50% over last year; while for the full year, the EBITDA came in at INR 204 crores, which is up 56%. IndAS adjustment had a negative impact of INR 13 crores for the quarter and INR 38 crores for the full year, thereby reducing the net profit for the full year to INR 12 crores. The Board -- as we already disclosed, the Board has proposed a dividend of 7.5%, which is subject to approval by the shareholders in the upcoming AGM.

On the inventory side, we remain quite comfortable, while the overall inventory mix looks marginally higher because we've been upstarting for the upcoming festive season. As Lalit just mentioned, we also celebrated Eid for the first time in South India. And April, May, June are big season months for us. So we definitely upstocked for that. Strategically, we have also put slightly higher amount of inventory in South as we're experimenting with new concepts. [ The stores highly a large product ] we have been expanding on the kids portfolio and also expanded the men's range particularly around shoes and comfort wear. The inventory days came in at 110 days majorly due to lower operating days and sales in the first half of the year and also a lower base of operations for Unlimited stores.

We will definitely target in the days of inventory back to around 90, if not lower, at least in this financial year. But as I said, I think the inventory remains quite solid also because that we did much lower buying in 2020 and also in summer of 2021 because of COVID impact. So that should help us in any case as a tailwind as far as the current impact of this situation is concerned. Cash position definitely remains very healthy. We remain debt free with almost INR 150 crores of cash assets. CapEx for the full year was at around INR 149 crores, which included the acquisition of 73 stores in South and a net addition of 39 stores in the other parts of India, apart from making margin investments around the new warehouse which is coming up.

On the online side, as I said earlier, we've already leased almost 2% of run rate on the monthly revenue is, which is a very promising sign. Definitely, there are pressures as far as the customer acquisition costs are concerned. They remain to inch up higher particularly because of the increasing privacy laws on all social media platforms. We followed a mixed approach. We promote a lot of traffic on our own apps while at the same time penetrating marketplaces like Amazon and Myntra. And we will continue to invest behind the online initiatives with vigor as we hope to achieve at least 5% revenue mix in the coming years.

On the Unlimited side, I think as Lalit also mentioned, we have seen good progress, and we are quite happy with the progress. Things are going exactly as per plan, in fact, better than planned because we are seeing much higher traction on the mall stores in these times, in inflationary trend times. And the mall stores are definitely showing much significant -- significantly larger traction of customer footfall and ASPs and transaction sizes.

We've also signed a new properties in South, and we've also decided to continue with the Unlimited brand in South, which has happened after a much prolonged market research. And the formal decision is yet to be taken, but as probably we will definitely want to continue with the Unlimited brand. And in fact, some of the new stores which we are now planning to open in the next couple of months will have Unlimited brand. And the new stores, we continue to build up the pipeline for the new store openings. As we have mentioned in the past, we will continue to grow at the historical rate of 20% plus on the base, and we look forward to better that number.

South, as I said, is doing quite well. We've seen good prediction on the monsoons. And the kharif crop realization should also come in quite strongly. There is a challenge because of the monetary situation as well as the economic downturn especially in these poor towns, but we expect the larger economy to do well and stabilize in the coming few months, and thereby, our aspirations for the full year growth numbers stay intact.

On the CapEx side, we remain committed on the plans for the year. And as I said earlier, we are also planning to set up a new warehouse on which work has already -- or just about to begin and which is about -- which should get completed by the end of this financial year. And I think that should help significantly in our supply chain, bettering our supply chain and also our online operations. So that's all from my side. I will now request the moderator to open the call for questions, and then let's take it from there. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Aliasgar Shakir from Motilal Oswal.

[Aliasgar Shakir, analyst]

Sir, just first question on if you can share how was the LTL growth for V-Mart in fourth quarter? And you did mention that festive season was much better this time. So if you could just share some detail on 1Q FY '23, has it turned positive impact of COVID core inflation, looking at all of that, I mean, how should we see the situation in the coming quarter?

[Lalit Agarwal, executive]

We did report a positive like-for-like in the March quarter. So -- but yes, the base number was quite small at that point of time because we see like-for-like from pre COVID level or even FY '21. So if I look at pre COVID, it was positive by 2%. But if I look at from FY '21, which we thought was a better quarter, it was negative 3% at that point of time. In the current times, I think, as I said, April was good, but still the festival has moved ahead. So we have seen Eid sales coming in the month of April versus May in the last year. So overall, cumulatively, we see we are still not a positive like-for-like growth right now. So we will still wait because there are a lot of movement in the festival and the wedding days, so we'll expect some bit of respite coming in, in the latter half of the quarter.

[Aliasgar Shakir, analyst]

Okay. And 1Q FY '23 like-to-like we are comparing with '19?

[Lalit Agarwal, executive]

Yes, yes. Right now for all those practical purposes, I'm seeing '19 as a base number because '20 and '21 were both washed out in April and May.

[Aliasgar Shakir, analyst]

Right. Even for 4Q '22, I believe, right, because otherwise, if I see, I feel there is a decline from last quarter as well as 4Q FY '20? Correct me if I'm wrong.

[Lalit Agarwal, executive]

Yes, yes, yes.

[Aliasgar Shakir, analyst]

Okay. Okay. Just a few questions on Unlimited. So I understand we are not in a position to share numbers on the profitability for Unlimited. But if you could just share some color at store level portfolio, is it positive? If I say on pre 116 basis and Anand indicated that we are acquiring properties over there, so if you could share some color in terms of what kind of store additions we should expect in Unlimited portfolio. And just last thing there is old inventory that we were carrying for Unlimited. Has that been phased out? Are we now largely using V-Mart? Or else, by when should we expect that to happen?

[Lalit Agarwal, executive]

So see, as I told, Unlimited numbers are better, and we did not see a lot of growth coming in from '19 numbers in Unlimited in the last quarter. But still we were positive in EBITDA, and we did get positive EBITDA. It will be a little bit difficult for us to share the number actually, but we were positive. Most of our stores were giving us good response. There were also a few rental discounts that we had received also in the initial part of the quarter maybe. But otherwise, also, I think we will hit positive a bit, I don't worry about that.

On the other side, I think we are opening up, we are planning to have the zonal -- zone-wise expansion plan similar as other zones of V-Mart would have. So that is between 15% to 20% addition of the base number that is there to target. That's how we are focusing on adding stores in all the zones. So that is how South zone is in the target. So we should expect somewhere between 12 stores -- 10 to 12 stores in the year coming from South.

And third point of about inventory, I think we never own the old inventory. We took it on -- we definitely did not giving back. We try to sell that inventory through on an SOR model. That also I think we have been done with that, and we are now -- we are almost 80% or 85% of our inventory is now the new inventory which is coming from the V-Mart. So it is going to cover -- so in the last quarter, it was at 60%, 65%, but now it will be around 85% of the inventory.

[Aliasgar Shakir, analyst]

Got it. Excellent. And just last question on raw material costs. You've taken 15%, 17% increase. Has it absorbed all the price increases? Or do you think if the raw material prices don't cool off, we'll have to take any more further price increase?

[Lalit Agarwal, executive]

Yes. So the last season, when we plan for our spring, summer, I think post that, also we have seen some price rise, which has happened. But now looking at the scenario, it may not continue to rise. So we'll not take another price rise. We will definitely not want to impact the customer more. That's at the end of the price rise story. We will want to now work on the backside to try and reduce the cost and try and work on the efficiency so that we are able to allow or get the -- offer the customer the same product and the similar price now, which you've already done. But I think further going down, we should not expect a lot of inflation coming in, in the commodity of cotton.

[Aliasgar Shakir, analyst]

Understood. We don't even expect that to have any impact on gross margin, right, even without a price increase?

[Lalit Agarwal, executive]

Don't worry, we'll take care of all of that.

[Operator]

[Operator Instructions] The next question is from the line of Chanchal Khandelwal from Aditya Birla Capital.

[Chanchal Khandelwal, analyst]

Lalit-ji on the -- if I look at the footfall growth, the footfall growth is 10%. I'm just trying to understand, is it a thing to concern -- be concerned about? This footfall growth is including the Unlimited or this is only for V-Mart?

[Lalit Agarwal, executive]

This is including Unlimited.

[Chanchal Khandelwal, analyst]

Okay, so...

[Lalit Agarwal, executive]

So Chanchal, we are definitely seeing a lower footfall, as I said. There are a few customers which we saw -- which we are realizing that who are below a certain strata of economy. We are not seeing them at all coming in. So we are not seeing them in the market also. So there is some impact which has happened to this household or this income level. So that is one stress which we have, and that is something which should come up.

[Chanchal Khandelwal, analyst]

So I think as all improved, this can come back. The only other point to understand, Lalit, is that with competition heating up, is there some footfall which is going to the competition also? Is it a concern? Because there are 2 school of thought. One is all the smaller players have died down in COVID, so you should benefit. But at the other place, there is Zudio scaling up almost 100 stores per quarter -- per year. So any concern in the competition or you think it's just that inflation is taking a toll?

[Lalit Agarwal, executive]

No, no, definitely, competition is stretching their arm. There will -- every competitor which gets added in the market, there will be some footfall which will be attracted. Some footfall which will also be generated because there are still a large audience which is shopping in an unorganized market, which has not come to the organized market. So all of these retailers when they come in, they take away some footfall from your existing basket, and they also add up some footfall. And finally, what happens is the new store always drives a charm for the customer. They will want to come in to go to that new store. But it is all about in the later stage how much are they able to retain or how much are we able to up. So it all depends upon your experience, the kind of experience that you give, the product experience that you provide, the prices that you provide and the fashion and the quality that you provide. So it is a long-term game. There will be some -- definitely whenever some new competitors and that we have been saying ever pass, and whenever there is a competitor which opens up, they will attract some football. They will definitely take away some footfall share from our stores but also give back going later.

[Chanchal Khandelwal, analyst]

Sure. Just one last question on my side. The Unlimited, the average selling price is much superior. Now any learning from Unlimited, any brands, which again Unlimited, which you're going to get to V-Mart, anything which you want to implement in V-Mart for your average selling testing to margin to improve?

[Lalit Agarwal, executive]

Definitely, a lot of good things that Unlimited also have and where we have taken up some good things, we have already rolled up also in our V-Mart store. Still, we are watching out too for other things like, as you said, the partner brands. The partner brand business which we thought was ongoing though but now also, if we focus on those, they are also good respite which is coming in, good performance which we are seeing from those brands. So we are watching it very closely if there are particular product lines or if they are a particular partner band which is affordable to our market base and our customer base because our average size here at V-Mart is 8,000 square feet. We also have some stores we have Kirana offerings. And we also have cross merchandise, which is a GM merchandise which is there. So we -- the space is a bit constrained at V-Mart, so we don't have too much of space to allow every other brand to get rolled. So we have a very, very rightly sized model, so we don't have that extra ability to add more brands, but still we'll keep prioritizing and we'll keep seeing it together so that we are able to use the benefits of both the stores.

[Operator]

Next question is from the line of Nihal Jham from Edelweiss Financial Service.

[Nihal Jham, analyst]

Sir, a couple of questions. Lalit-ji, you recently mentioned that you have obviously been 2 multiple stores during this quarter, while you did allude to the fact that there is an improvement that is expected going forward. But even the recently concluded harvest season has seen the benefit of strong prices for farmers along with obviously inflation also continuing. So between these 2 opposing forces, what is the kind of feedback you're getting on ground in terms of is it that the improvement in farming comes is expected to percolate into higher spending or the inflation will have an overgrown impact in terms of consumer spend?

[Lalit Agarwal, executive]

See, I mean, definitely, as you all understand, in India's climate condition, the harvest income, one, definitely, the harvest income is here right now, till now, they have not got the money of that average income. They're still getting the money, and maybe they'll start consuming it in the June month is what we will expect something coming in. But that also in India, people have a little inconsistent trust or not 100% trust over the weather, so they will definitely want to retain some part of it because they are already seeing the pressure of inflation which is coming in. So that in India, still the farm income and the dual customers, even if they get some income, they immediately don't come out and spend heavily.

So we will see still some setup coming in from the inflationary pressure because not everyone is a farmer who comes to our store. There are a large audience which is also people who work for entrepreneurs and work for people who are government generator. So still, I see this inflationary pressure has a huge pressure on their kitchen, on their home. And then beyond that, we also -- I also discussed they also have got some EMIs now for the laptop or for the mobile phone that they bought because of the case education. That is another pressure that they have. So still, I think there will be some liquidity pressure on those families for the next 3 to 6 months. That is what my expectation is.

[Nihal Jham, analyst]

Understood. That is helpful, sir. The second question was that you've obviously given the ASP out for Unlimited around INR 600. Now the question here was that what is the thought in terms of the ideal ASP you want to bring Unlimited to once you have complete control over the collection. And the second question was that going forward, is it right to assume that Unlimited will be the brand for those Southern part states? And for any other state, we will look at V-Mart as being the brand? Or are we going to look at both these brands coming into some states? Just the thought on how these 2 brands will now be going forward.

[Lalit Agarwal, executive]

So Nihal, as of now, I did visit a lot of stores in the Southern India, and I did also interview a lot of customers. We are also still conducting a market research wherein we are trying to understand and do it structurally. This is an overall brief that I get from my store visits. And what I understood there is there's a good loyalty of the customer as of now. And there are a lot of competitors in the market which is coming up and which is trying to create an impact. And this particular brand and these kind of stores have seen a change -- 3x change because they had a megastore in the earlier part of the story. And there is Unlimited with a different version and now we are doing Unlimited in a different version. And it's now -- I changed the -- once again, the brand name Unlimited, it is too much of pressure on the team and on the customer to try and understand what exactly is this store type to offer. That is why we have decided right now that for the period, we will continue with the Unlimited brand, and we are seeing good traction coming in. It's all about the product lines that we will change, and we will try to offer the same.

But yes, as of now, South India is what we are trying to contain the Unlimited brand, but no one stops us from thinking, even if we have a good opportunity in the same market where V-Mart is operating, why not open up that. But right now, I'm not committing anything on those lines, but there is an opportunity that also can be explored as the question was on if you want to like to -- you asked me on the brand, if you want to promote such kind of brands or smaller brands which are giving much more value for money, how do we try to convince the customer who are getting a little more aspirational. So that's the whole thought process that we will build. But as of now, we are continuing with V-Mart in the rest of India and Unlimited in the Southern India.

[Operator]

[Operator Instructions] The next question is from the line of Percy Panthaki.

[Percy Panthaki, analyst]

Sir, I just wanted to understand what has been the mix effect this quarter on a Y-o-Y basis. So basically, what I'm looking at is your average selling price would have 2 components, right? One is the price increase itself. And second is the mix of the products that sell. So the mix effect, is it positive or negative and to what extent?

[Anand Agarwal, executive]

Percy, Anand here. You're absolutely right, the ASP is definitely a mix of the price impact as well as the merchandise mix. So if I compare it to last year, if you recall, the last year ASPs have gone down because the customers have started to slightly downgrade in terms of buying more comfort wear rather than occasion wear. And that is a trend reversal that we have seen very clearly right from the beginning of the festive season around Diwali. And that is coming in very strongly in the ASP mix as well. So as far as the -- if I break down the ASP increase of roughly around 26%, actually, it has 3 components. So one is the price increase that we have taken. Second is the merchandise mix, which has shifted in all parts of the country, including in West of India, that is the North part of the country as well as the South part of the country. And third is the base impact of the Unlimited merchandise, which mainly sells at a higher ASP. So the price increase was roughly around 17% on a cumulative basis if I take the full year impact. And the balance, 7%, 8%, 9% is coming in from a mix of the merchandise as well as the base impact from South.

[Percy Panthaki, analyst]

Understood. Understood, sir. Secondly, can you just tell us what are your store addition targets for FY '23?

[Anand Agarwal, executive]

I think we should definitely look at a healthy store addition. We've always maintained roughly around 20% on the base. And I think we started around 370-odd stores. So I think we definitely look at somewhere around 60, of which at least 10 to 12 should come in South because we work on a zonal structure, and we have 4, 5 zones now in the country. So every zone has a target to add at least 10 to 12 stores, and that is what we should definitely look at.

[Operator]

The next question is from the line of Bharat from ICICI Securities.

[Bharat Chhoda, analyst]

I had a question on your CapEx. It would be better if you could provide us the CapEx breakup for FY '22 and also for FY '23 and how much have we spent on our warehouse and what is remaining on the warehouse and the other breakup for the CapEx. I'll ask the other questions later, sir.

[Anand Agarwal, executive]

So Bharat, in FY '22, roughly the INR 149 crores of CapEx that we have done into 3 components. So one is the acquisition of 73 stores, of which roughly around INR 57 crores, INR 58 crores was in terms of the store fit-outs for Unlimited excluding the security deposit et cetera. And then there were 39 stores that we added in North, which added another roughly around INR 40 crores, INR 45 crores. And then there were some store refurbishments of around INR 10 crores, INR 12 crores. And the balance amount was towards the land acquisition cost for the new warehouse, roughly around INR 35-odd crores. For the next year, I think the breakup would be in 2 parts largely. One would be around the CapEx on the new warehouse, which I anticipate the spend in this year, it should be around INR 70 crores to INR 80 crores. And we should be looking at adding around 60-odd stores, so that should take in around INR 60 crores of CapEx on the new stores, plus there would be some store refurbishments of around INR 10 crores to INR 15 crores apart from minus investments in digital space of around INR 5 crores to INR 10 crores.

[Bharat Chhoda, analyst]

Okay. And sir, what we see is like that the inventory days are higher. So do we see a risk of inventories given that what you see that the demand is lower? So is there any inventory risk over there?

[Anand Agarwal, executive]

So there definitely will always remain an inventory risk, but these are 2 slightly different undated things. So the inventory days for previous year are higher because of the ASP or the average sales per day being lower because the first half of the year was at subscale because of the COVID impact. On a full year basis, I do not anticipate the days of inventory to remain in the high range. We've traditionally operated around 85, 90 days, and that is what we will definitely try to bring it back to. There is definitely some amount of risk, but I think the kind of artificial intelligence-based replenishment systems and the supply chain planning systems that we use, I think we should be fairly in our situation to control inventory wherever at a short notice that is required.

[Bharat Chhoda, analyst]

Sir, if I may add one more question, like it is about the rental expense. So how much of our rental concession have we got in FY '22? And this figure of INR 134 crores, is it including the rental concession or it is excluding that we have mentioned?

[Anand Agarwal, executive]

So that is excluding the rental concessions. This is the net. I think the rental concessions in last year should be around INR 13 crores, INR 14 crores, not more than that because the major concessions came in the previous year. In the last year, there were hardly any systematic disruptions are announced lockdowns, so therefore, we could not get a lot of concessions. And I think the landlords also have become very vary of giving any more concessions.

[Operator]

[Operator Instructions] The next question is from the line of Tejash Shah from Spark Capital Advisors.

[Tejash Shah, analyst]

A couple of questions. Sir, first, between are you at a different point of time in your commentary, you spoke about competitive intensity and also some silver lining on consumer sentiments, there also you mentioned it's some mixed bags for now. So as we look forward to F '23, between competitive intensity which you mentioned in some pockets, it is going down, some pocket it is increasing. And consumer sentiments also you are hopeful about agri and other drivers there. What are you more hopeful about and worried about in FY '23?

[Lalit Agarwal, executive]

Tejash, this is largely about the consumer spending power. We are only worried about that because the inflation is throwing big numbers, and people are a little worried about that. So that is a big worry, which is speaking about how will the customer buy. And because the wages have not gone up, their incomes really have not gone up. There may be some respite coming in from the farm income which can get translated. But still, I don't know. Will it lead to more inflation? That's a question that every economist is finding it difficult to answer. We don't know when this cycle is going to correct, and that's the biggest worry that we have right now.

[Tejash Shah, analyst]

Sure. But Lalit, theoretically, in an inflationary scenario, consumers become more value-seeking and the kind of cohort we had to do and are positioning also. Shouldn't we be beneficiary of an inflationary scenario because people down-trade, and then we recruit a customer from about the pyramid also, and obviously, we recruit from unorganized as well and what we do naturally?

[Lalit Agarwal, executive]

Tejash, I mean we also thought this could be right. But right now, in this particular scenario, there are 2 things which is happening. And if you look at this job market turn, and the job market turn is actually people who have been able to earn greater than INR 40,000 or INR 50,000. And who are in the job market. They are seeing a great turn in churn. And then there, we are seeing almost every person is able to earn additional 20% to 30% from this job change. And then that is creating a large drive within that particular base of customers who is above INR 50,000 earning group member. There, I did not see that coming in. But yes, that is how we are seeing Tier 1 story building a little better, where we are able to have more customers such base. But largely, our customer base lies between INR 15,000 to INR 30,000, INR 35,000. So at that level, we are seeing some pressures coming in.

[Tejash Shah, analyst]

Sure. And lastly, any comment or any observation on competition emerging from online value formats like Miso? Are they already competing with us in the same cohort or are they still different?

[Lalit Agarwal, executive]

I mean, definitely, this is the new competitor which has come in. And not that we are able to find a lot of people talking about it. We did survey in the market. This is also we did ask questions. In bigger cities and bigger towns, people are aware about that and people have seen that. But still will they buy again from someone who already bought in from the sites, we had a question asking them, will they buy again from the site, their response was very, very bleak. I think they did not have a great experience over the quality of the product. I don't know those are those sustainable mechanisms. There are these kind of win which comes in, and we will have to just stand by our own principles, with our own value systems, with our all own qualitative offering, and we will win over all of these. So this we are going to come in. These are loss-making models, they'll try to bring out all kind of tactics in the market. But I think largely customer understand where they need to trust on, and there is a cost to service every kind of model which is sustainable.

[Operator]

The next question is from the line of Jignesh Kamani from GMO and Company.

[Jignesh Kamani, analyst]

This time there is a write-back of shrinkage close to around 0.6% versus 1.3%, 1.5% earlier here. So the gross margin and EBITDA margin is inflated to 1.5% to 2% because of the reversal of shrinkage?

[Anand Agarwal, executive]

Partly you are right. So there are 2 impacts. One is definitely there's a reversal of shrinkage provision in the current quarter, and we follow a very consistent and time-tested shrinkage provision policy. As I said earlier during my remarks -- opening remarks that we have a very good quality of inventory that we will be having because we did not have a lot of old stock. Therefore, there is no significant additional amount of provisioning which is required, and therefore, we see a small reversal in the current quarter, which obviously will lead to a small improvement in the gross margin. Having said that, also because we did a lower amount of discounting and promotions because the market did not require that, that also contributed to the positive upside on the margins. The third part on the margin, also as I said earlier, was the mix impact coming in from the South India stores where the margin structure, the gross margin structure in any case is designed to be 3% to 5% higher. And therefore, the combined impact of all these 3 factors gives us an upside on the gross margins.

[Jignesh Kamani, analyst]

Can you quantify to take South India impact will continue for next at least 1 or 2 years or more? Are the 2, if you can say, normalized over a period of, you can say, next 1 or 2, can you quantify the impact of that?

[Anand Agarwal, executive]

No, I will not exactly quantify, but I think, as you rightly said, the first 2, which is the shrinkage provisioning as well as the lower discounting, will get normalized in the coming months. The South India impact will get normalized over a period of next 1 or 2 years.

[Jignesh Kamani, analyst]

Second thing, you mentioned that right now, inventory is limited because of 2 -- and in South India we are experimenting with multiple SKUs. And in North India, we are up-shopping for the festival. Now since festival is over, how is the current inventory level in the North India?

[Anand Agarwal, executive]

The current inventory level is okay. I would not say the festival is over, as Lalit just mentioned to -- a few minutes back. We are anticipating strong demand in the month of June because the harvest season is just about to get over, and money from the crop realizations should now start coming in. So we have not started to down stock. We have not rationalized. But yes, we are comfortable on the inventory as I speak to you today.

[Operator]

Next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

[Prashant Kutty, analyst]

Just extending the question in terms of -- you spoke about the rural side of the Tier 2, Tier 3 markets being under pressure in terms of wage growth and all. Just want to understand, as you're probably moving into the quarter in terms of maybe the March month or maybe the April month and all, are these things kind of changing because you also are seeing that wage growth or probably the rural income is slightly in a better stand or at least the narrative is slightly changing in favor of rural? So in that sense, are we seeing any uptick measures over there in terms of demand? That's the first question.

[Lalit Agarwal, executive]

Prashant, I see still we have not been able to see a noticeable change in that because in the last month, which is April as well as May, I mean what we saw is impact being a little more higher. And the impact of inflation are also coming up a little more higher in the ground because the impact people all had the old inventory and people have the lower price point inventory which there now it's lower. And now people have to sell those higher price inventory only. I think still there is an impact which has continued. And government is trying to bring in some action in terms of bringing down the fuel cost of the tax rates and stuff. So there will be some impact we should be seeing overall coming up. But yes, it will also depend upon how the agriculture price remains. If that remains bullish, we should be able to see that impact coming in.

[Prashant Kutty, analyst]

Just an extension to this one, on the other side, you also spoke about the urban growth rates are much more better in that change. And the fact that in this market, typically, we're talking about income levels being impacted. We're also seeing a lot of other retail formats, actually talking about Tier 2, Tier 3 markets doing well for them. So you really think it's only a function more of about probably wage is not kind of coming back or is the competitive intensity kind of in general heightened up? Because just on the part of urban part as well, has Unlimited been to your expectations because those are more urban centric or, let's say, more Tier 1 centric segment? So has that been at least in line with our expectation? Because when you do the math, please correct me if I'm wrong over here, we see that the -- there's been no SSG growth if I look at a 2-year basis despite seeing almost an 8% to 10% kind of increase in price. And if you look at the footfall number, also football number also seems to be lower. So just asking if not probably V-Mart is -- Unlimited at least showing those signs?

[Lalit Agarwal, executive]

I mean I think we have our entire commentary, whatever numbers that we have projected for Unlimited, we are doing better than that. And those are actually within our targets. And as we also said that especially bigger cities and specialty malls have done much better. And we are able to see that effect creeping in. And there are multiple facts here that there is also a fresh collection which has been launched, there's also a different kind of products which are being launched, which is more V-Mart product. So there is also an effect of that. Plus exceedingly, those economies have done better. I was just in Bangalore yesterday. The huge -- the whole IT crowd is coming back, that the people are now in the market, people are now trying to meet one another, trying to party. So things are moving faster in bigger cities, metro cities and Tier 1 versus the Tier 3. And I don't think Tier 3 will remain far away from this. So they will also pick up the same thing, and it is going to be a contagious effect which will bring us benefits of the consumption.

[Operator]

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

[Shirish Pardeshi, analyst]

Sir, indeed, it was a very good performance in the last 7, 8 months we have seen for Unlimited. So I'm on Slide 10, where you have given the numbers. So just wanted to understand what is the Unlimited sales per square feet before acquisition and maybe you want to see the exit of March '22.

[Lalit Agarwal, executive]

Where are you? I'm not able to understand. So what is this you're asking, Unlimited sales per square feet?

[Shirish Pardeshi, analyst]

Yes, you have given on Slide 11 sales per square feet in last year was INR 530, which has moved 5% and which is now INR 559. I'm asking specifically for the Unlimited store before the acquisition and maybe exit March.

[Lalit Agarwal, executive]

Before the acquisition, I don't know how to compare that. So it will be very difficult for us to compare before the acquisition because there was pandemic and stuff. So if you look at all of that, I think we have done a slightly better there. I would not -- in the last quarter, we have not done better. We have still not been able to meet pre-pandemic level in the last quarter. We'll be able -- we are able to do that now.

[Shirish Pardeshi, analyst]

Lalit-ji, I got what you're saying. If the growth overall for the company is 5%, I just wanted to understand how much higher of INR 560 for Unlimited. Maybe if you have that number handy or maybe I'll take it later.

[Lalit Agarwal, executive]

No, I don't have that number handy. We will give Unlimited number later.

[Shirish Pardeshi, analyst]

Second question on the Slide 10, you have given the FY '22 conversion rate at 63%. And for the quarter, we also remain at 63%. I think previous participants did ask this question. So what is it that top 2, 3 things? Because if my memory goes right, we used to be in the range of 67%, 68%, and the conversion rate has fallen down. I'm sure you would have some parameters and measures. But for my understanding, if you can help me, what are the top 2, 3 things we are doing for improving the conversion rate?

[Lalit Agarwal, executive]

I think we are very bit comfortable with this conversion rate, as I have been speaking also earlier. I believe that at least 2 people come to buy something, and they do one invoice. But in our remarks, we've always seen that conversion rate being around -- hovering around 65%. But right now, especially from South India, the way we capture the footfall there and the way conversion is being noted, we are seeing around 50% conversion in South India. So -- and which I feel is a genuine number, which we can definitely see in this number. So I think we are comfortable on the conversion rate side. It is more about increasing the footfall that we are worried about, and we are trying to work only on that side to try and attract more customers in the store.

[Shirish Pardeshi, analyst]

So one follow-up which I was wanting to understand. Anand did say that the margin what we have shown because of the Unlimited franchise and exchange may not remain. But when I do my number quickly, we have consolidation of about 7, 8 months for Unlimited. And then hopefully, FY '22, this is going to be normal. What is the worry which Anand would have a concern that why the margin should not improve for our overall company?

[Anand Agarwal, executive]

Shirish, I don't have a worry, I think, but I will stand by what our common philosophy is that we are an honest price business, and we would want to give back to the customer to attract in with the best possible pricing and not really earn more for increasing our margins. So we would want to remain in the 32%, 33% gross margin range and the result in EBITDA. If there is a pressure on expenses, we would want to compensate that by higher volumes or higher customers but want to give back as much as possible to the customers so that we maintain or increase our rupee margin percentage margin. But having said that, Unlimited margins, because of the higher cost base, we are constrained to have a higher margin structure, which we will also rationalize in the coming years as we start normalizing the operating cost as we open more new stores there in the V-Mart budget and operating structures.

[Shirish Pardeshi, analyst]

I have more questions I'll take off-line.

[Operator]

Thank you very much. That was the last question. I now hand the conference over to the management for closing comments.

[Lalit Agarwal, executive]

Thank you, everyone. I know these are all testing times, and the comparable numbers are very difficult to get reported to and to chase also. Forecasting is becoming very, very difficult. Algorithms are failing. There is no precedence of how -- what base should be, what products will work well, how -- which product worked well in the last year versus now, what is going to happen. There's a change in the customer behavior. There is change in the customer preferences. So there are a lot of assumptions, there are a lot of algorithmic shift which is happening, and that is how we are also being very, very watchful, trying to do both from the side of inventory management, customer satisfaction as well as our operational performance getting better. So we are working on all those lines, doing a lot of experiments using technology to bring out results, looking at things from a zoomed-out level, looking at things from across a centric level and bettering and then strengthening those, looking at our long-range plan and then trying to also transform some of the areas so as to get higher benefits in the coming days. So that's where we are. Thank you once again for being on the call. We'll keep reporting you back. Thank you.

[Operator]

Thank you very much. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.