V-mart Retail Ltd

NSE:VMART

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Q4 FY '23 Earnings Conference Call of V-Mart Retail Limited hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Jay Gandhi from HDFC Securities. Thank you, and over to you.

[Jay Gandhi, analyst]

Everyone, on behalf of HDFC Securities, I welcome everyone on the earnings call to discuss the Q4 and FY '23 annual results of V-Mart Retail. We thank V-Mart's management for having provided us with the opportunity to host the conference call.

On the call, we have with us Mr. Lalit Agarwal, Managing Director of V-Mart Retail; Mr. Anand Agarwal, Chief Financial Officer; and Mr. Suchi Mukherjee, CEO of LimeRoad. With that, I request Mr. Agarwal to provide his opening remarks and proceed with the conference call.

[Lalit Agarwal, executive]

Good morning, everyone. Thank you so much for being on the call. Definitely, the business has been quite a lot of going in Retail, quite a lot of things are going in the industry, quite a lot of things are going in V-Mart. So we are quite occupied with a lot of good stuff. There's a lot of emotions which are getting generated, a lot of news which are going to come in.

So overall, I think the way Bharat, the way India has been growing is quite remarkable. And we are seeing definitely a lot of good potential view of the consumer market of the consumption in India. Definitely the way our country is growing, the way people are predicting about the future potential and I'm looking at this particular year. I think because of the elections because of the -- a lot of global turmoil, which is what people are talking about.

I think India has stood up very well. So at the international level, what we have seen definitely, people are coming back to their normal routine, people are back into speaking positive about the businesses, about the other activities, having a little higher confidence on the kind of job that they can get, the people who can really work on -- who can work on certain particular job, are looking at growth because in smaller cities even in places like Uttar Pradesh, Lucknow and all, we are hearing people are little motivated by the industrial development, by the upcoming of certain industries in the state and the approach that the governments are taking. And we definitely feel there's a lot going on.

In a lot of those states, a lot of Indian states and there's a competition. So this competition definitely brings in more confidence in people. In terms of development is also giving a lot of confidence in the people. Till now agriculture produce has also been fairly good. People have been able to -- the agri income dependent people have been fairly okay on their income level.

Definitely, there are pressures in the economy, which is the [indiscernible] the economy, which forms almost 70% of the population in which we have been always sleeping. So K-graph economy which we have seen in the market, somewhere what I'm seeing is [indiscernible] down more, both from the steepness and the degree it used to have on the upper side as well as the lower side.

On the lower side -- on the upper side, we saw this demand coming up in hotels, flight tickets, in malls and then so a lot of those are now on the honeymoon period, I'll call. And the excitement, the ribbon shopping, the ribbon outings, the ribbon tourism. They are all now coming to normalization -- back to normalization.

We are starting to see that bigger, a part of little bit. We are also starting to see the lower part of the [indiscernible] , which were in the lowest rate out of the economy where we are seeing just people, consumers getting demotivated and then they were unemployed. I mean, we are decreasing their consumption. So we are seeing those consumption coming back a little bit.

So that part is also getting to product. And now some normalization, some materialization we are seeing. And we hope that within next 1 or 2 quarters, we will be able to see positive moves coming in -- positive moves coming in from all the segments. And that's how our analysis and our [indiscernible].

There are definitely states which are doing very good. There are states which are still really under some pressure. I think there's also a transition phase, which our company is going through from informal economy to a formal economy. And then a lot of that we can see in the GST collection pieces as well. It's not the business growth, which is coming in, it is also the formulation of the economy which is happening.

So with the formalization, there's a lot of benefits on the numbers we are seeing on the screen, but there is also a pressure which is getting created in the nonformal -- informal economy, which is the people who used to -- who were not used to operate in this registration or taxation environment and the formal environment, they're getting somewhere effected by this whole formalization.

They feel themselves a little less confident. They are under some kind of pressure and threat on their businesses and their businesses seems to be a little down, even lesser corruption and a good framework of our implementation of most of the public distribution system and public distribution of those incentives. I think those formalization also has helped the economy, helped the consumer where it is reaching them to the right consumer. But also, there are a few media [indiscernible] and there's a lot of [indiscernible] which used to work.

And then they have somewhere getting impacted all of those that -- so we have seen some part of pressure -- higher part of pressure in Uttar Pradesh we have. We have continue having that in Uttar Pradesh because we've seen a lot of development coming in Uttar Pradesh. So that's our territory that we are watching out. That's something that we are looking at because they are definitely building a lot of things for the future. But as of -- as the current moment, there is a transition phase to be going on. And I think that should take under 6 or 8 months, so that we are able to come back on that.

Rest, I think most of the territories are behaving well, both towards the Southern India, especially in East and Northeast India has been pretty -- they're come back has been pretty good in this particular quarter. We have seen very good growth coming in. Even now, I mean from those particular areas and I've been coming back from the [indiscernible], also of people in Northeast because of a lot of activities and interactivities, The government has started and has been very, very good.

So I think overall, we are seeing good and even the industry has been holding quite stable now. There is definitely more intense number of contracts which are coming into this market, in the retail and the value retail contract. So a lot of activity happening here, a lot of people opening up new stores, especially those conglomerates which you know, and they are targeting this market. There's definitely more supply in this market in this value retail space in 2, 3 towns compared to the -- compared to the earlier days increase to be as they definitely a lot of mapping that we did over competition -- understanding this competition. So we saw a lot of new stores getting built up in the last few years and are almost 50%, 60% additional number of stores got built by us as well as by the competitor. So I think there is definitely more supply.

The demand definitely did not grow as per expectation. There is a lot of potentiality in India, in Bharat. We all believe and we all talk about it. But in the last 2 years, 2.5 years, we see there's many things happening with those consumers. So the demand has not picked up, it has remained medium or little low. So that is where the supply -- additional supply we're getting received is not getting matched with the demand which is there.

So I think there's definitely right now little higher supply. There's also economic pressure on the lowest rate of the population. So we see some relief coming every week, every month. And I think that's the positive news. And -- but balance, I think, at V-Mart, we continue, we believe in the long-term story. We definitely believe what is -- what we are there for, what is asked in, where should we be focusing on?

And we believe that the game that we used to play 3 years, 2 years back is normal again. It is definitely a little more tighter. It is a little more competitive. And then we need to be potentially capable -- a much more capable to meet the future need of the customer, future needs of the market. So that is how we have prepared ourselves, we are definitely preparing ourselves. We have substantially worked with the consultant [ Kearney ] for the last 15 months.

Clearly focusing on -- really creating a capable and scalable model on our procurement on our planning, on our forecasting, on our digitalization of those inventory management. So I think a lot of those work in understanding the consumer, having the consumer-sided mindset, understanding the competition, and then developing and creating certain internal capabilities in our organization with respect to the fabric nomination, fabric sourcing, technical understanding, quality betterment.

So we used to always believe in all of this. We have always done those. But in the -- I mean the kind of model that we are preparing, this is something that is more scalable, and that's what we are focusing on. There's a lot of transition and there's a lot of process transition also going on in the company. These are all so good. But we are very hopeful that we will be able to better our offering, better our proposition to the customer, both from the product perspective as well as experience respective. So there are a lot of work that we're internally generated. There's still a lot of projects which are internally going on.

We are working on more than 50 projects in the company. We are very confident on certain areas. The -- some part of the team members have also changed, as new team remember, I am also getting some benefit into the system. So I think a lot of these things, we will definitely continue. We believe in the long-term story. We continue -- we believe that there are a lot of timing [indiscernible], they're still the kind of stores that we opened is required.

There is a differentiation that we have with respect to the market, with respect to what the customer needs. There is no differentiation we are trying to create, unique differentiation we are trying to create over fashion, over timing, over quality so that we stand out in the market. There is definitely a lot of room for everyone to do business. There are players-supply that have to organize, taking about retailers as well as digital retailers, and we have heard about the upside of the sales of [indiscernible] or even Flipkart. So I think there's definitely a lot happening in that market.

A lot of market share also has been taken by both the players. And I think it is just the economy, which moves up, we are all set and we are all there. And largely, internally, digitally also, I think we have been focusing very, very high, both in the front-end side of the digital, the customer offerings, how do we motivate the customer to really have a convenient shopping experience, both the online as well as the offline. And I think we have internally also brought in a lot of digitalization.

In terms of creating better processes. In terms of creating better perfection or better forecasting because ultimately, this business is more also about forecasting, understanding the right assortment, understanding the right passion, getting into the right timing with the right quantum and the right mindset. So I think a lot of those work we are doing, which is definitely benefiting the company.

We continue to create as a great employer, we definitely want to attract the best of the talent, retain best of the talent. These are tough times for the industry and for the market. And we believe being a great employer definitely helps employees also be motivated in the system. So we continue doing a lot of activities on those lines. our integration with both Unlimited has been very good. Our integration with LimeRoad as well has been very, very supportive. Very, very good. There is definitely a lot of change that we are seeing. Cultural change pieces that we have seen with both the organization and we have definitely respected each other. We have really come down very, very well. Last 12 months have been good.

Definitely, there were a lot of hiccups that the business had when we took over. And I think Suchi has been playing an instrumental role. The team has been really working hard for the last 5, 6 months to try and bring back the existing business on track. Bring back the core business on track and then also integrate with the [indiscernible] this particular office and try and see how do we -- how do you bring in the team effort in trying to take up the organization and take up the omnichannel approach, and that's what we are talking over.

Definitely not too many things have happened on those lines till now. Yes, we have a lot of plans. We are working on those of things. Whatever we have done until now, the day we have launched our V-Mart online channel, but the customers are getting excited on those. And the way the teams at line see the opportunity.

I'm quite excited, and I believe that there could be a unique normal proposition, which can be get [indiscernible]. And we are definitely here, we are investing for a long term. We believe that the long-term story is just not going to be getting water or an online. It is definitely going to be a multichannel or omnichannel approach from the consumer side and which is going to remain and be there. So for a sustainable retailer -- for a retailer to sustain at a longer level, every retailer has to definitely have a very, very strong digital arm, and that's how V-Mart is preparing ourselves, and we are investing in the V-Mart business. We understand V-Mart has not been very, very eager to fund the loss-making businesses because every time -- even our stores, which creates losses, we have always -- we can shut down those businesses or slowed down these businesses.

So we definitely believe and we will definitely invest into these businesses. So that -- we believe in the long-term sustainability of retail and long-term sustainability of our business. So I think those are some of the big work that is happening in our company.

Even on Unlimited basis, I think we have been -- we have yet experimented few things. There are a lot of good things which has happened. There's still a lot of things that we believe should give a response. And we did not really get those taken in their Gallant response. We believe there is more communication in that market. Our new stores in those markets have really fired very well, especially [ 7 states ] and [ 7 stair line ] the [indiscernible] in Unlimited are in Southern India.

There is a lot of potential, there is a lot of room. There's a lot of opportunity in that market that we can see, and we would want to focus a little more higher on that. We're excited with that opportunity and we believe there's a lot of growth possible there. So we are focusing a little more on those 3 markets in the Southern India. We will be very, very focused on bringing down the losses in some of the stores which are not performing or slows down some stores if required, which we are not able to bring back. So that's how we are taking it up.

Definitely, same-store sales growth is very important. There is a pressure on the same-store sales growth, which is not coming. But yes, I think we are coming back on track. We have seen a good growth in the last year, in the last quarter. We would want to -- and we are seeing some healthy signs also in this current year. And definitely, we are not expecting a lot of growth because there are some months in this current year, [indiscernible] weddings are not there or there are some months which are a bit nice, which will come in. So we will have some -- almost a neutral first quarter and the second quarter, we were expecting.

We are expecting a lot of growth coming in from the third quarter. And that's how we see into this market. I will definitely request Anand to take a book from here. Give you a brief about the number. There are definitely a lot of numbers. Number of questions that you would have. We will be definitely try to answer all of this.

Anand, over to you.

[Anand Agarwal, executive]

Thank you, Lalit, and good evening, everybody. We have actually given a lot of information in this quarter's investor deck. So I will not take a lot of time, but let me just take you some of the key highlights from the quarter and then we can -- I'll also ask Suchi to give us an overview on how LimeRoad is progressing. So on the quarter, it has been a good quarter with sales growing at 30% year-on-year. And for the full year, we do a 38% with the same-store sales force of 10% for the quarter and 23% for the full year.

This year, in fact, was also our highest-ever sales. And in fact, it was also 45% higher than our 3 quarter numbers of '19, '20 at the overall level. For the quarter, both remarks as well as Unlimited stores like-to-like, we marked at 11% and Unlimited at 4%. Tier 1 markets continue to outperform the Tier 2, Tier 3, Tier 4, reinforcing the K-graph recovery that we've been seeing. But as Lalit said, yes, there is some betterment which we are now starting to see in the small tier marketers well and particularly around Tier 3.

There were good growth in footfalls as well as volumes. We strategically dropped our average selling prices by 5% during the quarter. It was a planned decrease in line with our strategy of attracting more footfalls by increasing the mix of lower-priced products and also some strategic price reductions.

As a result of the slight traction in pricing and tilting of the product mix towards more value offerings, the gross margins for the quarter reduced to 32%, while this is lower than the 35% what we achieved last year, but definitely much higher than the average range of 28.9% that we used to have pre-COVID. The last year's margins were significantly higher due to the impact of higher [ IT ] fees taken, which has now been corrected.

On the expense side, LimeRoad expenses increased by 52%, they also improved the full impact of the newly acquired LimeRoad business. The expenses for the quarter include an amount of roughly around INR 38 crores towards the spend on the entire online business, including the OpEx for both vmartretail.com and limeroad.com. Excluding the online business spend, the expenses for the quarter grew by roughly around 23%, which reflects very well with the overall sales increase.

The major impact of the expenditure on the online business is in the marketing expense line, which is at overall level, 1%. And other expenses, which includes the technology costs, delivery and fulfillment costs for the online platform. As I have mentioned in the past as well, the business revenue in LimeRoad consists only of the commission earned from sales facilitated for sellers, while the expenses largely consists of marketing logistics and technology costs.

On a go-forward basis, we are very confident of establishing LimeRoad business as a very strong growth driver for the organization and remain committed to invest in the journey to reach sustainable and profitable destination. As a perspective, Unlimited has also taken 1 plus 1.5 years to come at full year profitability. And we have similar project plans for turning around LimeRoad and switching it. Leading that good partners with the team is delivering very close to the monthly growth plans and whatever plans that we have talked about.

Coming to EBITDA. For the V-Mart core business, EBITDA for the quarter 4 came in at 7.5%, with Unlimited at 11.9%. The Unlimited EBITDA does not include any cost allocations of the headoffice expenses, which usually average is somewhere around 4%, and that is why it's showing a bit higher in comparison. But happy to share that Unlimited business is growing strongly profitable and helps us achieve good EBITDA at even 20% to 25% lower sales per square feet. And that's the strong growth that has happened in the last 2.5 years.

We control the expenditure to improve the sales per square feet marginally and results are [indiscernible]. The Unlimited team is now working on increasing the sales productivity. And once that is also achieved, this business should start yielding in better terms. The overall EBITDA for the quarter was marginally lower than last year, majorly on account of low gross margins and the strength incurred online growth.

On the CapEx side, we spent roughly around INR 270-odd crores in the year, which is largely comprised of expenses on the new warehouse, which is now scheduled to start operations by the end of this month.

Other CapEx included spends on 59 new stores and refurbishment of old stores of our some high -- some IT-related expenditure and the investments in acquiring LimeRoad business. There have been marginal improvement in the overall working cap cycle due to increase in stable days and market control over inventory.

The company opened 59 new stores during the year, 47 in North, 12 in South on Unlimited land. We also closed 16 nonperforming stores, 13 in V-Mart, 3 in Unlimited. There has been increase in store closure for the last few years, but as discussed -- as a disciplined retailer, we keep assessing any possible nonperformers continuously, monthly basis to pair out any future losses.

Largely, the stores that we have closed in the last 2 years all belong to 2019 and 2020 stores which actually did not get a very good runway to reach maturity because of the COVID impact. And somehow they could not just come back -- come to the overall remark level or expected level of Phase II profitability. And that was the reason for the closure.

I think largely, the closures have been done with, and there should not be any more significant closures this year. So coming through LimeRoad, I think LimeRoad has shown great potential in the last 5 months. The number of orders have increased substantially, and the revenues have also increased substantially.

I will request now Suchi, leading the LimeRoad resurgence to update us on the performance and plans. Thank you.

[Suchi Mukherjee]

Thank you, Anand. So we're now nearly 5.5 months in full year and the first full quarter as part of the Group. It has been a period of a lot of block and tackle the operational -- operations to stabilize ourselves. And we have been able to deliver conditions subsequent related to the deal as planned. That the team has also been able to deliver 88% top line growth as well as delivered EBITDA, which is better than planned, and I feel good about that.

One of the key challenges going into this deal, of course, it's operational, but also team related. We are excited that the team has stabilized with not -- even a single riveted departure. Culturally, I think the great thing is that we found voices, right, that keep our cultural differences impact online and offline together are two different worlds. And yet, it's great to see that we've found a way of working. There's still a lot of collaboration to do. But the important thing is that we've managed to find the voice as well as high velocity turnaround in actions.

I'm also excited that internally the LimeRoad team has been able to build a line of sight to inflecting deeper metrics on the P&L. That's a good thing. And not everything we try will succeed. That's the reality that's part for the course, but I love this trait, and I am glad that the vision with which we went into the deal continues to pervade in terms of actions, and it's only these that will yield outsized outcomes.

So overall, a decent first quarter, I feel good about it, but it's still day 1 and lots to do. Over the next few quarters, we will be building much deeper rights to win this value market. Lalit spoked about the emergence and the greater velocity of emergence of this aspirational India, we are going to double down as our first pillar on category supply where we will uniquely be able to marry LimeRoad score inherent strength in category editorial, trendspotting, creation, data in terms of projections together with VM strong back end in delivering value pricing, at what I call emerging #instatrendfashion at really high quality and value pricing. I think that will be disruptive. It's something we've always wanted to do. And I think that's what's going to be the sort of the category supply thesis at LimeRoad.

Second, we will do a lot of deep work, and we already are doing it on search and discoverability for our users. We think of our users of transcending off-line and online, what people call omnichannel. And we've been playing a lot with, of course, stuff like GPT-4, et cetera, which we think will fundamentally have the ability to inflect user experience, right, both online, in our stores as well as we'll have some interesting cost characteristics. So technical product, road map, data road map there in place and we'll be able to share more stuff over the next few quarters.

On the third leg is trust. Online, we will be bringing VM's core capability in terms of pricing, needs, quality. And I think that's an important leg to building trust online. I feel like we are uniquely positioned to do that. And then finally, we all care deeply about the P&L and the team will deliver a stronger P&L. Thank you so much for listening in.

[Operator]

[Operator Instructions] We have a first question from the line of Sameer Gupta from India Infoline.

[Sameer Gupta, analyst]

I have a few. So firstly, we've seen store additions of around 43 in FY '23 on a net basis. and this will translate to around 20% retail area. Even if you take gross additions, is around 15%. Now historically, we have always maintained a 20% kind of a retail area addition. So is FY '23, first of all, an aberration.

And going forward, if the demand environment takes a little more to improve. You mentioned that the next 2 quarters, wedding calendar is skewed. So are we going to go slow in store additions in that -- taking that into an account? Now we also have a net debt of around INR 120 crores historically, we have always been net cash. So I mean, how are you looking at these things?

[Lalit Agarwal, executive]

See, our belief remains similar and our approach to open up the number of -- or additional square feet is similar. Definitely in the last year, this is an operation where we had to close down. And these slowdowns are not those close downs that we normally done because if you understand that we had opened up between 59 stores in the year '19, '20. And those stores -- some of the stores saw 6 months on the stores, 4 months of the stores, 8 months before the overhead. And those stores do not see a good run rate. So there has been a lot of pressure in those kind of stores, which we opened in both '19, '20 as well as 2021. And then we have seen definitely a lower cost at sales even negative EBITDA from some of those stores.

So we are taking some corrective measures. We are working on a lot of stores to try and improve those -- their performance. And wherever we see some of the stores are not coming in back into [indiscernible] and we are not able to call in the customer, and we have some location issues or we have some higher rentals or the EBITDA is low. So that is how we have taken a call to close down the store.

So the net number that you are speaking about is close to closing them. We will definitely focus on adding not 20% but yes, around 15% to 16% additional square feet, and that's the model that we have.

We definitely don't want to conserve cash because of this. Because our belief in the India market, in the Bharat market is for long term and we would definitely keep investing in this belief in the times to come, even in this particular year and the next year. So we will keep adding up our stores, and we will be adding more than the number of stores that we have opened this year. Not on a net level, but on the gross level also. So I think we are targeting something about 60 stores in this particular year.

[Sameer Gupta, analyst]

And that's very helpful, sir. Very clear. Second question is on the cash CapEx, you have seen around INR 270 crores in FY '23. And if I just add back the INR 80 crore of warehouse and INR 67 crores of LimeRoad, it is still a INR 110 crores kind of a CapEx for a gross addition of, let's say, 59 stores. So that translates to around INR 2 crore per store versus our historical rate of around INR 1 crore. So I just wanted a reconciliation.

[Anand Agarwal, executive]

So, Sameer, the CapEx on the warehouse is roughly around INR 109 crores and the LimeRoad spend is around INR 36 crores. And yes, the balances towards some automation, technology interventions, floor refurbishments, we actually, every year, we do some amount of at least 10 to 20 stores, which ones that need refurbishments and the first store refurbishment costs usually are around INR 20 lakhs to INR 30 lakhs. On top of that, there is the 59 new stores that have been added. So...

[Sameer Gupta, analyst]

Going forward, these refurbishments probably will continue, but the automation and warehouse is done. So I can take that as nonrecurring, right?

[Anand Agarwal, executive]

Yes, substantially, yes. But we would keep incurring some amount of technology interventions. It's now changing at such a fast scale that we will need to keep investing at least some bit, but it may not be very substantial.

[Lalit Agarwal, executive]

But Sameer adding to your point, the warehouse is still not operational. So there is some investment in current year end, so we can continue a little bit. So we'll see some numbers in this year on those.

[Sameer Gupta, analyst]

Would that be material?

[Anand Agarwal, executive]

No, no, no.

[Operator]

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

[Shirish Pardeshi, analyst]

Let me start beginning with the on ground reality. I think the quarter gone by, we have seen a demand around festive season, and you alluded saying that you are expecting a demand recovery after quarter 2, quarter 3. Can you give us the road map of how we are trying to build? Because on one side, we are building the store network and other things. And we are also trying to extract the efficiency from the various teams. But in the medium to short term, how should we look at and build in the revenue contribution from all these 3 businesses?

[Lalit Agarwal, executive]

This is -- I mean we can't clearly give you an indication of how build up our revenue indication. We definitely are targeting a positive same-store sales growth. We are not seeing a very, very high interest as we had seen in the last year. So last year was basically outcome on the [indiscernible]. So definitely, we are expecting a positive like-to-like growth from the existing stores towards the mid-single digit or a little higher mid-single-digit numbers. That's what we should be targeting.

We definitely believe we will open up, as I said, to produce 70% of the retail area to add up we definitely have a plan for the online business that we have because we were contributing around 2%. Now we basically get to 3%, 3.5% of our revenue. We could take that to maybe target to take that to 8% to 10%. So that's how I think maybe you could back calculate those and then some what's the number that you can think of? Because see, we definitely see, as I said, we are growing, there's not too many companies that we have. We definitely have implemented those product strategy, where we had a pressure last year where we increased our prices and the consumers have went away.

We decided we have really worked very hard to bring down the prices. Our ASPs are now lower by almost 8%, almost 10% of [indiscernible]. So now we are attracting those customers back who went away from our stores and which we didn't see. So we will definitely expect those things to come back. And then when the market comes back, this particular bottom of the pyramid, the last audience. This definitely is our loyal customer, and we will be the best one providing them, and we still believe these people will be shopping with us.

[Shirish Pardeshi, analyst]

Okay. That's helpful. On the Unlimited piece, I just wanted to have one question on the margin improvement, that is happening that you have done a fantastic job. But in a steady state, what are the things you have done and whether these margins are sustainable? Or can we say that it will improve from here? And what are the things which you have taken the measure to improve this business profitability?

[Lalit Agarwal, executive]

As you understand, we went into with a dual pricing approach, and we had a higher even if the same terms are selling in good base, but we have a little higher priced product in the South India with same item. So that's how we're bringing a little extra gross margin in this business and that gross margin, we have seen a good response on the consumers accepting those product lines. We have been very, very careful on our [indiscernible] expenses. We have definitely started conserving a lot on those, that is where we are bringing. And additional margin we could expect one from the same-store as the existing ones.

How do we bring back the still those [indiscernible] stores, which are still not providing positive EBITDA. So we have to work on those to try and improve their EBITDA and take some decisions there. Three, we will have to really open up new stores. We have plans to open up a little additional new stores in the 7 Territory along with other territories. So we will focus on adding more stores in the 7 Territory. And those 7 Territory stores, if you understand, we are opening on the V-Mart model and the V-Mart model of expenses, but the margin remains a bit higher. So that definitely will help us to reprice a little extra alpha margin. And that all those stabilities should give us a good healthy unlimited P&A. So that's how we're having.

[Shirish Pardeshi, analyst]

Okay, that's helpful. My last question to Anand. On the LimeRoad account, we have taken a loss of INR 44.1 crores. Can you just give a little more color? Is that absolute loss in terms of inventory write-off or bearing something? So some more color on that. And should we have some more such losses to be incurred in FY '24?

[Anand Agarwal, executive]

So the INR 44 crore loss from LimeRoad actually includes a onetime expenditure of roughly around INR 12 crores, which we have also highlighted in our last quarter, which is some -- so on a go-forward basis, I think as I explained during my opening remarks as well, LimeRoad expenses finally consists of marketing, technology and fulfillment costs.

And that is where there is an increasing improvement that we see in terms of how we are able to reduce the cost per order in terms of all these three aspects. And that's what the team has been working, and we should see quarter-on-quarter improvement in the loss numbers, I will not say that this business is going to turn profitable in 1 year.

I think it is a longer runway. We had originally guided that we should be looking at profitability only in after year two we would want to better that. But as of now, I cannot give a timeline, but definitely, we should see improvement at least in the loss numbers in succeeding quarters.

[Shirish Pardeshi, analyst]

So would you give some sense of what is the cash burn which we are expecting in FY '24?

[Anand Agarwal, executive]

We had guided in our last call as well that we would want to cap our exposure LimeRoad losses towards to 20% of the overall group EBITDA. And that should translate to roughly around INR 50 crores to INR 60 crores, not beyond that.

[Operator]

We have our next question from the line of Amit Khetan from Laburnum Capital.

[Amit Khetan, analyst]

Lalit, you have, in the past, talked about Tier 3 and 4 not doing as well as Tier 1 cities. Now if I look at your Slide 11, right, the sales per square feet data indicates otherwise. Is this because the Unlimited stores are muddling the Tier 1 and Tier 2 data?

[Lalit Agarwal, executive]

No, I think this is what you are seeing as the sales cost profit and that definitely is both urban stores as well as the way we categorize our Tier data. So for us, like a Tier 1 [indiscernible] the measuring Tier 1 and then so that's how we see and we have definitely added a lot of stores there in the Tier 1 towns, certain flagship stores also got added in Kolkata, [indiscernible]. So I think so we are seeing a little higher sales per square feet. But largely, we are talking about the [indiscernible].

And I think we have been always a player who has been -- and we all know about Tier 1 cities and we have always told that Tier 1 are doing a little better compared to Tier 2 and Tier 3. And that is how the Tier 3 have still not grown over the last 3 years. That is why the sales [indiscernible].

[Amit Khetan, analyst]

No, no. But the data shows otherwise, right? Tier 3 sales per square feet is higher than Tier 1, at least in the slides that you have shared.

[Anand Agarwal, executive]

Yes, Amit, let me just add that. So actually, yes, you are right. So partially, this is a combined impact of Unlimited where the sales productivity in some of their source in Tier 3 is slightly higher. Additionally, we also have some very good performing stores in Tier 3. Traditionally, which have also been outperforming. So even when you look at -- in the same slide, when you look at the FY '22 data also, the Tier 3 numbers outsmart every other tier.

So it's got a stronger base, it's also grown for both the reasons as I said. One is the UL mix, Unlimited mix and second is the higher concentration of higher performing stores in that particular year.

[Amit Khetan, analyst]

Got it. And how do you categorize Tier 3? What kind of cities would fall in this?

[Anand Agarwal, executive]

Tier 3 typically has cities with more than 2 lakhs population. These are typically district headquarters or districts and cities with less than 1 lakh population fall in the Tier 4.

[Amit Khetan, analyst]

Understood. And lastly, on this sales per square feet metric, right, we were doing about 800, 850 just prior to COVID or maybe a year before it. Right now, we are at 620 overall and 650 for the V-Mart franchise. How do you see this -- the trajectory of this metric over say, the next 1 or 2 years?

[Lalit Agarwal, executive]

See, I mean, there is definitely a lot of efforts which are going on and there has been a lot of new additional stores, which we had and not performed well and the new addition square feet of Unlimited at a lower basis also positive number. So I think we are inching towards both the new stores that we are adding up even in V-Mart, I'm seeing [indiscernible] per square feet sales coming in. So I think we will be -- we should be back to those numbers maybe in the next 2 years. It will take some more time to reach that number.

But yes, I think we have -- that's how I said in my opening remarks, we are letting on those fundamental indicator and fundamental levers, which will drive all of this. And this is what we are doing. So all those newcomers which are coming in daily attract consumer attention also. And I think most of that has happened. We'll see these numbers coming in, in the 2 to 3 years period.

[Amit Khetan, analyst]

Got it. But would it be fair to say that we would reach our normalized margins only once we reach that 800 kind of mark? Or can we achieve that with a lower number as well?

[Lalit Agarwal, executive]

No, I think you guys have the calculation, you will understand, at this particular rate of price stores and it's profit. However, we performed on the P&L. And the moment we increase our P&L even by INR 50 to INR 30 per square feet how does it come to the bottom line? So most of our expenses are fixed in nature. Definitely, any addition in the top line will definitely go to lead us into the bottom line. And with the initiatives that we have taken up internally on procurement, on sourcing, on planning. All of those should also better our margins going forward.

As of now, we definitely are working to bring back the customer to give them the confidence in the prices. So we are working with it with a very, very [indiscernible] margin we don't want to give you a very much big hope on those margin lines. But yes, this which is definitely whatever we are doing internally will definitely help us to improve those margins in the coming days.

[Operator]

We have a next question from the line of Tejash Shah from Spark Capital.

[Tejash Shah, analyst]

A few questions from my side. Sir, Lalit you spoke about engaging with some consultants during the year or last couple of years. If you can share some of the details of the project on what exactly are we trying to improve or optimize and where are we in the entire journey?

[Lalit Agarwal, executive]

We are technically, as I said, the whole consumer understanding, category understanding, redoing most of those, understanding the market scenarios, understanding the commercial trend, how do we integrate all of those and then bring into our plans and then have those capability internally of designing and you understand that we have a story, we always used to believe that we would replicate the style of bigger brands that we get with the time of international fashion.

But we never used to have a core internal design and this is what we have developed. So we have still are merchandising the part into 3 parts, designing, buying and sourcing, and that's the outcome of the project. And we have created a strong design team with the design head that's definitely giving a very good edge to V-Mart where we are able to track similar fashion, which ZARA in the world can do.

We are focusing on similar lines. We are definitely curating those with the requirement of the -- of our consumers. So some of those pieces will happen. Recruited a technical and a quality department, which is definitely working on strongly on bringing up the quality level, bringing up the technicality of the product, bringing in innovation there because we just don't want to increase the tension. The more the raw material price increase, how do you bring in innovation for big development?

How do you work with the leads in the companies to try and bring in those new innovations on to our floor, bring down the cost of the product. How do we -- then we have a sourcing department, which is separately created just to work more on the cost benefit, cost analysis, work on those scalability of the vendors, bettering the quality aspects of vendors.

So I think all of those departments and then the whole planning piece is bringing digitalization into analytics, analytical-based store understanding because category store projection. So a lot of work is happening on all of these lines. So that's what we do. And apart from that, also a lot more is happening internally.

[Tejash Shah, analyst]

Sure. And then long has been all these initiatives -- has this been implemented?

[Lalit Agarwal, executive]

We've been working on these for the last 12, 15 months. We have started the implementation. I mean the projects have started now -- started some deliveries have started. This is also a transition period for V-Mart. We are not in that mode when the elevation restructured, there are a lot of things that happen.

I think definitely, the chain management also needs to get adopted. These are pieces which are really implementing the organization. So we have started some of the adoption. We will see some benefit coming into the -- in this period, which is the autumn-winter period which starts from August extent. And then we should see, finally, most of the initiatives results should be visible in the Spring '24.

[Tejash Shah, analyst]

Sure. And does it also mean that our private label share or strategy will also be aligned to this or that is independent of what we are doing on this?

[Lalit Agarwal, executive]

I mean, definitely, whatever are all of these are doing in the private label. So whatever that we'll do in the private label pieces. This is where -- this is how we are going to follow. So that's what I'm explaining.

[Tejash Shah, analyst]

Perfect. Second question, historically, in your listed history, we have always seen as one of the most prudent and conservative retailer who has already avoided that even in the volatile period of demonetization or GST transition or even in COVID. Now even though it is tangent, but we have no debt on the book and then the kind of investment that LimeRoad acquire or our expansion in North and South will acquire, how do you plan to actually go ahead on this part of balance sheet?

[Lalit Agarwal, executive]

Yes, I think you are absolutely right for this. Your concern and my concerns are similar, and I look at the same way that you are looking right now. And then we have always believed in having cash in our book and that's how we have worked, but we are definitely -- we believe in the potentiality of the market. We believe there is a lot to come for India.

And at this time, and this is what you guys are already guided us that this is the time that we should invest into the market. And we have started investing because we don't want to be a pure traditional mindset company, only investing some equity. So we definitely want to have the right balancing, the equity in that. Not that we will focus on building the debt, but we have some balance sheet should always be done. But yes, we are in the process, we have also invested revenue in [indiscernible] development of warehouse.

So we have that asset, which is already built, and that is getting kind of pressure that we look at in the balance sheet. We have an ability to offload those -- that asset as well. So I'm not indicating that right now, but that's something that we could think of that. As of now, we are very confident that our internal cash flow, the way we have designed our prediction, our internal cash flow, we should be positive on those issues with our numbers, and we should be able to take care of most of our expenses internally as well.

And most of our expansions internally exist which we are able to do. We definitely have to work hard on inventory management, our working capital management. We have to work hard on even our asset management. So we are tracking all of those areas, and we have multiple numbers to improve on this.

[Tejash Shah, analyst]

Sure. And lastly, a question for Ms. Suchi. So see, usually, online businesses are known for a kind of scale first and profitability while value retail culturally is designed to this rural in nature and squeeze out every penny of efficiency possibly from the cost structure. And so where do you see LimeRoad kind of culturally fitting into V-Mart culture, a. And b; if you can answer also how do you see ONDC as an opportunity to kind of expedite our journey on going on path for V-Mart and LimeRoad both.

[Suchi Mukherjee]

Is this -- your questions are in two parts. One is cultural, the other ones, ONDC. Look, on the cultural component, if you think about the businesses that have done really, really well, right? Globally, you think about online businesses like Xceed, Long Tail, lifestyle, products, they have really high healthy EBITDA margins.

And I care really about creating value, value for consumers, value for our shareholders. So Culturally, I think the meeting of minds was around those two values and how do we win for our consumers and how do we win for shareholders? And I have no doubt in my mind that comes by generating true cash, true returns.

And if you look at our pre COVID history as an independent company, you will know that and has never ever did discounted to grow, and we've never really taken inventory on our books.

Historically, we've always been let cash first business. So those are part of the M&A. That is part of the reason why this partnership works. So hopefully, that answers your question. I see no deviation there, and we are all fully committed to continue to deliver that.

Why injecting the truly different cultural DNA that I think we bring to the table, which is tremendous debt DNA, tremendous data DNA, opening up the TAM for the group, right? Seeing the consumer with really 28-plus highly fashion, high aspiration on fashion, but still very value seeking. And so that's what we will deliver. And I think we will -- you will see us consistent on that.

On your second question on ONDC. When we see, we've looked at it quite deeply. We've done a lot of that integration work already. And we don't have a firm deal, this could go either the UPI route, which means it could explode and make digital really large in India, it could also be marginally muted. So it's too early to call -- but I think -- I do think that it is a great initiative to enable digital transactions and anything that supports that, I think we're fully supportive of.

[Operator]

We'll take a last question for today from the line of [ Rishi Modi ] from Marcellus Investment Managers.

[Rishi Modi, analyst]

My question is for Mr. Anand. Anand, the way I see it, right? Currently, the bond rate of LimeRoad alongside the store expansion plans and the debt on the short-term debt on books. I think we'll be having to raise any equity if the operations don't turn around. So just want to do your view on any potential plans to raise equity and the quantum?

[Anand Agarwal, executive]

No, there is no plan to raise any equity or dilute equity. That's not -- that's absolutely not on the annual. I think the way we have structured our plans within the four walls of the plan for next year, we should be able to manage the burn on the LR because, -- on LimeRoad because we already got cap in place internally. On the store expansion, the numbers that we are looking at. We've worked around them and to we've only quoted numbers which we can finance and which we can manage from the current flows. There will be some amount of average short-term debt, working capital utilization, which will keep happening throughout the year, but there is nothing beyond that is planned.

If there are any substantial headwinds in close, we may need to structure some of -- restructure some of our expansion plans, but that's it. I will not definitely seek any additional capital inflows.

[Operator]

Thank you. I would now like to hand over the call to the management for closing comments. Over to you, sir.

[Lalit Agarwal, executive]

Thank you, everyone, for being there. I definitely understand there is a lot of construction getting built over the company. And I definitely want to register everyone this question, nothing has changed. I think we have -- we are working on our plans. We are working on what we have communicated. We are definitely working on what is good for the future of retail and the future of the company. We are definitely taking certain risk which is not showing up in the number, and we believe in the long-term story, we will definitely take most of the actions which are benefiting our long-term story, and we definitely are those environmental, cultural companies who don't just look at this quarter-on-quarter numbers.

We understand there are macros and there are situations in the market. We definitely don't want to get pressurized under certain short-term calls to improve our numbers.

We will definitely work and keep working on improving our strength to offer and give a great experience to the consumer. And that's both digitally and physically. And that's what our endeavor is. And we remain sure on these lines, we definitely -- you could lose patience at times. We would want to be more and more transparent. We would definitely want to keep everyone more informed.

In the whatever we could possibly do. But yes, you guys have to also support the team and then build your models accordingly. So great, thank you so much for being there and being confident on the company. We definitely would deliver and keep delivering your expectation. Thank you. Have a great day.

[Operator]

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