V-mart Retail Ltd

NSE:VMART

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the V-Mart Retail Q4 FY '24 Earnings conference call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.

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

[Varun Singh]

Thank you, Neha. On behalf of ICICI Securities, it's our pleasure to host Q4 Earnings Conference Call of V-Mart Retail Limited. From the management side, we have today Mr. Lalit Agarwal, Managing Director; and Mr. Anand Agarwal, Chief Financial Officer.

I will now hand over the call to the management for their opening remarks, post which we will have the floor open for a Q&A session. Over to you, Lalit, sir.

[Lalit Agarwal, executive]

Thank you for being on the call. Things are looking a little brighter, A lot of morbidity we see in the market, definitely no action.

[Operator]

[Operator Instructions]

[Lalit Agarwal, executive]

Yes. So there is a lot of action in the market because of movement of the police parties, election holdings, a lot of gossip in the market, a lot of media watch. So some real good actions coming in, the real quality is getting discussed at the ground level, but yes, definitely, it is also bringing up some confidence-boosting measure for the consumers and the customer seems to be looking a little more confident. We are seeing some betterment in terms of the way they would look at consumption or the way, they would look at their future income also.

And when we speak to a lot of consumers, the potential or propensity for them to consume more, looks a little more better. Definitely, there are few things that we are seeing on observing in the consumer sentiment, a lot of [indiscernible] is coming in, a lot of consumers, youth consumers are being promoted, even the government is also very, very clear on the fact that there is a lot -- big percentage of -- for the population which is youth. So a lot of programs and a lot of initiatives for that -- for the youth is getting discussed. So youth is being pampered a little more. Youth is being pampered both by the administration as well as by the market or by the consumers or by the company. So I think a lot of our initiatives are being launched for targeting the youth. So we are seeing some better consumption from youth also coming in. Plus, we are seeing some change in consumption pattern also.

Like what we witnessed is, people are spending, people are coming out to spend, but they are still spending on a little lower price per products compared to the higher price per products that they used to. So there is some change that we are witnessing and we are also seeing some change in the -- what we call the exclusives and premiums or the brand businesses being a little more muted, a little more slower versus the lower price per products.

So there's some of these changes is clearly being witnessed across the market and that is something which is setting the base expectation of the customer at a lower level, saying that, okay, I will leave the T-shirt, I think I want the shirt, but I will only need it at this kind of point. So that's the kind of mindset of fast fashion that the consumer is trying to focus on, but definitely not leaving aside the quality prospect.

Inflation has also been very, very controlled in this particular quarter, and we've seen a good response comments. So prices have really gone down or you take for even the food and vegetable products, which used to be higher in the entire 2-year period. So there is some respite and there is also some confidence, which gets generated because of that.

So the Rabi crop, we know, will bring in good results and is definitely going to create a better impact on the rural market and then the farming sector and the farming-dependent self-employed sector also. So we are very confident on the fact that the agriculture income should also bring in some kind of higher mobility in the consumption space as well. The weather seems to be quite okay. We are hearing that the monsoon is going to be good. So we don't expect any kind of disturbance in the monsoon. So that is once again going to be good news because earlier 2 years, we have seen bad monsoon or a little weaker monsoon in Uttar Pradesh and Bihar. So which had impacted some part of the consumption also in these states in the past that we have seen.

Overall, geography-wise, we see some good response coming in, some triggers started coming in either from market of Uttar Pradesh where it was very muted for the last 1 year. We have seen some betterment in the month of March and April seems to be better. We are seeing some betterment also in the states like Madhya Pradesh, Rajasthan, which has been really under pressure for the last 6 months -- 6, 8 months. So some triggers are being seen. These may be early indicators, very, very early. So we can't really say, these are some indicators. Southern India also, we are seeing on the high price per ticket items, it is going low, but in the low price per ticket item, it is definitely being accepted more and consumers are coming in.

So consumers are at the base of the pyramid or the lower part of the pyramid, they are definitely coming back now. We are seeing better footfall in the market. We are definitely expecting the fact which went in the month of March as well as part of April. We saw some good footfall coming in. We saw some -- a lot of customers who were earlier in the midst are coming in, some of those customers are returning back. We also saw a good sales, which is coming from repeat customers. So that particular site is good. Definitely, new customers rate of growth has not been too big. So -- but yes, I think there are also enough competition, which is now in the market. Definitely, a lot of stores have opened up. So that competition pre -- continues. We keep hearing about stores which have been opened by the competitors. And other than, definitely, we are watching them very closely.

There are competitors who are performing a little better than market, and we are aware of all of those performance. But yes, I mean there are fundamental certain levers that people might be compromising on, which could be a little shorter-term approach versus the longer-term approach. Those are some of the debates that we are doing trying to understand what are those different tactics and different philosophy that competitors are using to attract the consumer and give them more value and give them a better passion. So they're trying to learn on a lot of those. So for us, we have been focusing very, very heavily as we know on a lot of those strategies of internal development, internal betterment, internal process improvement.

So some of those have started showing some results, the integration, the collaboration between integrating all the departments into delivering the best experience to the customer, right, from the product forecasting, designing, to buying to actual digital merchandising, supply chains and then talking about that in the market. So all of these integrations were becoming a little difficult. So those are people which are coming alive. We are able to see some of those impacts. We also have experimented largely with the dense merchandise. We created a small team, and we have started focusing on experimenting certain lines of products, which we have experimented in a few limited stores.

The response of those particular lines have been very good. So we may expand that a little bit more, and we will take it forward and do it a little more bigger and then focus more on that particular object, which we may be losing right now. So some of those pieces have really come aligned very well. We are very confident on some of these facts. So we are trying to really focus on our internal capability, which is scalable -- which is replicable and which is sustainable. So those are certain things that we are trying to do, not putting any kind of steroids in the overall profit so that we get certain growth just because giving more value to the customer or giving more discounts to the customers.

We are not acting on any of such thought processes. We are not acting on any other thought process of reducing the gross margins, working on trying to just give more value variation to the gross margin. So those are not the things that we -- that are sustainable. So we are trying to focus on fundamental things, which gives the best experience and supply chain management to the consumer. This a great design.

We are definitely working a lot on quality. Quality parameters have been improved massively in the company, a lot of work is happening on quality parameters, quality inspections and a lot of rejections also happening for the vendor. So that is also causing a little bit of supply chain error -- problems in the mix, which caused a little bit of this, but yes, those are fundamentally good for the long-term future. So some of those pieces are being worked out. We have also done a lot of cutdown of bad stores, which were leading and which we're picking up a lot of our EBITDA. So as I also told you in the last call, there are few stores that we had flagged out, out of which we closed down almost 25 stores with a complete full financial year, and we did a lot of aggressive closedown in the last quarter, I guess.

So we'll definitely want to continue -- for the time being, we have taken action to a lot of those. There are a few more that we are working on. If they don't turn up, we may plan to or we may not shy away from closing them down as well because we are very, very clear that anything which is leading and anything which is causing a damage to the cash flow and the organization has to be either repaired, immediately improved or they get the brand of closing it down. Some of those features we are working on, we have -- we will continue with our expansion plan.

We are not being very, very aggressive, but we're being very, very mindful and are apical on our approach in terms of trying to open up the stores, which can retain and sustain the ROE that we expect and ROCE that we expect. So a lot of those work happening, have been very, very selective in our approach, not because -- the market is getting a little bit corrected in terms of people or competitors are trying to give a little more higher rentals and give more favorable terms in terms of consumer.

So some of those pieces are definitely being worked on. Apart from that, I think we are focusing on our product very, very highly. We are focusing on those design implications, design -- better designs, youth design -- some those -- some of those, what we call the forward fashion and trying to bring them a little more faster to our market.

We see some of those adoptions coming in even from 3 towns, very fast. So some of those things are good if those are better, the sell-through price -- sell-through rate should be better. And if the sell-through rates are better then maybe the gross margins, and the EBITDA should be positive and should be healthy in what we expect. And we are expecting sudden growth rate coming in. The growth rate has been shown in the last few months, March has been good, April has been good. May till now also has been okay in spite of marriages not being there in the month of May and June this year.

So we are still able to manage our sales over last year. We are able to see some growth there. So there is definitely some betterment that we are able to see. It should result into a better EBITDA and better gross margin as well going forward. So we will -- we have closed down a lot of stores in the Unlimited market also. Our net count has gone down in Unlimited market, but yes, those were the stores which were last closed, high rental stores that we acquired as a part of the deal, which we now have very clearly figured out that this is not something that we want to do. So we are opening up our stores in the tier 3 towns of southern India, those will continue to open. We will have those little extra expansion plan in the certain markets, which you feel is good and then it is giving us good results and good margins. So all of those remain good at the LimeRoad level, we have definitely restricted our losses. We are bringing in some changes in the business, the way that business is being done, the way the management is being done.

So some of those changes are also being coming in. So we will -- some of those changes will also come out in the few weeks, you may learn about it. But yes, we will want to be very, very aggressive and very, very clear that the integration between the V-Mart Unlimited and LimeRoad has to happen, there's a lot of omnichannel drive, which has to go on. A lot of omnichannel drive that also resulted in to better customer satisfaction at V-Mart in Unlimited store because the customers who would have gone are unsatisfied or unserved when they don't get sideways or they got -- they do product has really got satisfied with more than 1,000, or more than 1,500 orders are being generated from the stores where customers are keeping on currently, there is a tool called oneclick that we have already launched.

And we have seen good adoption by the consumer by the store staff that some of the omni integration are happening. And that is where we will focus very highly on and we will want that business to go towards breakeven, be breakeven towards the last quarter is business, but that looks a little difficult, but yes, that's where we will focus on and try to bring in the omni channel business more in the online space rather than the acquisition of marketplace orders or acquisition of orders from the social media front end and then paced performance marketing.

So some of those changes we'll want to bring in. There's a lot to discuss and definitely a lot happening at the company level, a lot of governance features. We are very highly focusing on both of these areas. We have been very, very conservative in our approach, whether it be on aged inventory or old inventory or shrinkage inventory or even on other provisions that we want to take and not take our audit committee, our Board has been very good.

We also introduced 2 new members on the Board. We want to broaden our Board of independent directors. So there have been very good two resources that we have found and very, very experts in marketing and given the source subject or even technology. So some of those pieces, we thought that we had a gap in our Board and that is where we wanted some more expertise. So we have brought in that and you know your company has been very, very highly focused on bringing up the governance level, really taking it to the next level, next standards. And I'm trying to be very authentic and very compliant in nature. So that -- those are some of the fundamental areas. Anand will take you into the details of the results, and then we'll ask the questions. Anand, please.

[Anand Agarwal, executive]

Thank you so much, Lalit, and good afternoon, everybody. It's been a good quarter with a good start to the festive period, both for Holi and as Lalit mentioned, I think April also went quite well. So we're quite excited about the opportunity ahead.

But first, let me take you through some of the key highlights from the last quarter and then we can open the session for questions. So for the quarter, sales grew by 13%, with an L2L of 6%. This is probably the second or third consecutive quarter with a good L2L growth with both V-Mart scores and UL firing quite well.

In fact, last 3, 4 months, in particular, since -- almost since Diwali, I think we've been seeing a quite sort of revival especially in the smaller towns in the Tier 3, Tier 4 towns. And especially in segments, in geographies where last couple of years have been very, very stressed, particularly in UP and also in parts of UP, in East India, we've been seeing some very good growth.

Demand grew by 12%, along with the volume increase of 12% and with ASP remaining flat. We have improved or rather strategically reduced our apparel ASPs in the last 1 year by almost 5% to make the pricing more attractive for the lower end entry point customer. And the strategy has started to show results. This is something that we had discussed almost 1, 1.5 years back also, and we've executed now to where we wanted.

The correction is almost over now. So there is -- the prices now today are very stable, and this is where we would want to keep our growth now to build from here.

Together with the improved merchandising and pricing, we have seen improved footfalls also in smaller towns, which is also helping us build back the sales per square feet. The sales per square feet also grew by 2%, in fact 3%, while per-store inventory came down by minus 10% despite a festive buildup for upcoming Eid at the end of March. The traditionally strong markets of UP and East India led the growth for V-Mart with new stores opened during the quarter also delivering on-time revenues.

Similarly in Unlimited, where we had been doing a lot of correction on the inventory cleanup and also improving the merchandising in line with what the customer requirement is for South India. And also after having reduced our average selling prices by more than 20% in the last 1.5 years, volumes have started to grow quite well. They had been growing, but the same has now also started to reflect in value growth with a strong 13% like-for-like for this quarter.

Definitely, the base, we had a significant impact in the base, but definitely, the growth is very promising. And not just this, the new stores that we have opened during the year in South India, under Unlimited brand have also been performing better than the legacy stores, which is very encouraging and allowing us to focus on expanding our presence in South even more.

The closure of 10 stores in V-Mart and 9 in Unlimited during the quarter will further improve the overall performance going forward as most of these stores got closed in March. Only -- and as such, the benefit on account of expense reduction shall start flowing in from April onwards. So more than the expense reduction, I think it's more of allocation of the right capital towards more improving stores, that is the focus that we want to create. And also send the messaging in the entire ecosystem that we are very, very focused on profitability. And any store which does not meet the benchmark or our thresholds will come up for correction. And that is something that we are driving with a lot of effort.

Coming to gross margins. The total gross margin at 31.7% was 20 bps lower than last year due to higher old inventory liquidation and also marginally higher inventory provisioning, as Lalit mentioned, due to more stringent and more conservative norms, the norms remain consistent for the last, at least, 10 years, and we are very particular of maintaining them.

There was also a delayed winter this year, which also meant some amount of inventory that we could have sold in December, we were forced to sell it at slightly higher discount in January, but not a big impact, but very marginal impact. Inventory remains in good shape and very healthy and the sell-throughs that we are receiving for the summer season are a testimony that the inventory health is quite good.

The Unlimited gross margins improved marginally, while the VM gross margin went down by 0.5% due to higher provisioning as in relation to last year. On the expense side, while the revenues grew by 13%, the expenses grew by 4% for the quarter with tighter cost control in all parts of the business. For the offline business, the revenues grew by 12%, while the expenses grew by 8% largely contributed by the increase in power costs, particularly in South.

For LimeRoad, the revenues grew by 29% and the expenses reduced by 18% over last year. We've been strategically reducing the expenses at LimeRoad without significantly impacting the top line by increasing the synergies and customer acquisition through the omni model being propagated through V-Mart offline stores. Lalit had talked about the oneclick initiative. That's a new tool that the LimeRoad team had developed in the last 6-odd months and that has been rolled out across 100% of the V-Mart stores with very encouraging results.

I think the team -- the combined team of LimeRoad as well as the V-Mart offline store team is very optimistic on building this up as the next vehicle approach for both the businesses. The omnification of V-Mart is what we will therefore continue to build and drive through the LimeRoad platform.

On a go-forward basis, LimeRoad expenses should further rationalize to deliver better productivity, resulting in a healthier balance sheet. You would have noticed that the LimeRoad burn as well as the EBITDA losses have been coming down by almost in double digits for the last 3 quarters consecutively. And that's the direction that we continue to build on.

As a result of all these initiatives, the quarter 4 EBITDA grew by 76% year-on-year, while the LR EBITDA losses came down by 44%. We closed 12 underperforming stores in South, which will further help improve the EBITDA in the coming years. And we also closed 13 nonperforming stores in rest of India. Again, the same impact, we should see the large impact of these benefits coming in only next year because all of these -- most of these closures happened in quarter 4 or even a large part happened only towards the end of March.

On the CapEx side, our CapEx incurred for the year was INR 137 crores, with net CapEx of roughly around INR 120 crores, almost 50% of this was on the new warehouse, which already got operational in June. We spent around out of this around INR 40 crores on the 46 new stores, around INR 26 crores on renovation of the existing stores, which is something that we took up with a lot of planning this year and which has also started to release some good results.

Overall, inventory levels reduced by 6% year-on-year, and the per-store inventory improved from INR 2.1 crores to INR 1.8 crores at the end of the year. Days of inventory while have remained similar year-on-year due to low base of last year. But otherwise, at overall, well, the health of the inventory, the freshness of the inventory and the overall health is definitely far better than what it was at least in the last 2 years.

We also generated free cash this year of INR 44 crores with very good inventory management. On the cash side, I think we have already done with large investments. Time has now come to repo the benefits in the coming years. So I think that is largely on the P&L and the balance sheet side. On the new stores, as I mentioned, we opened 46 stores and closed 25. And for the next year, we still would plan to open roughly around 40 to 50 stores with possibly some 5 to 10 store closures, not identified, but depending on their performance and improvement in the current year.

So that's largely from my side. We remain very committed to make sure that the LimeRoad journey remains very strong and fruitful. Omnification, Omni is something that we really want to build and that we will keep focusing on. So that's all on the P&L and balance sheet. Now let's open the house for questions. Thank you so much.

[Operator]

[Operator Instructions] The first question is from the line of Tejash Shah from Avendus Park.

[Tejash Shah, analyst]

So we seem to be now working very aggressively on benchmarking our stores and in terms of certain parameters. So I was just curious that what specific parameters of criteria we are using to decide whether a store will continue or shut down. And just if you have to kind of reflect on all the shutdowns, are there any common threats, which kind of tell you that this was a common mistake that you made in terms of perhaps regional or operational or location or merchandising, which was kind of we won't repeat as we expand because this is just a part of the correction because again, we'll have to open back new stores as we go along. So what will carry along as we'll institutionalize in our DNA so that we don't repeat in our next batch of expansion?

[Lalit Agarwal, executive]

So definitely, every store closes up, there are a lot of learnings which are captured and when we do asset you do take learnings before also and after also. And some of the learnings are largely that certain stores which we acquired or which we leased out, which were at a higher rentals and we thought that those stores can bring in good results and will give us good sales per square feet, higher sales per square feet.

So some of those calculations didn't work. So our anticipation and our working on finalizing the store location. Somewhere we thought was not getting gelled up with our thought process. Two, definitely, we identified as we had told earlier also, there were a few stores that they're already performing low when we acquired like from Unlimited or there were a few stores that the moment we opened up after 1 month or 2 months or 3 months, the COVID scenario happened and a lot of those stores got fixated in this particular areas where they didn't get the first few maturity period. And that made the whole change and slowly the inventory gets dead and inventory becomes older and the store footfall doesn't come in, it's more about more publicity and their customer comes from a word of mouth. And that's how a customer looks at the customer, and then they come in.

So some of those things and then definitely a few areas where we clearly identified that there are seasonal factors or there are those particular kind of merchandise, which is required in both particular area. There may be at those times, those part of the time of the season, we were a little not very aggressive or we were not -- we didn't plan it very well or there were some challenges that we found even in the team management of stock. So some of those things, some learnings have come in. A lot of those learnings have been captured as a change in the SOP or change in the processes and some of those learnings are coming in, in terms of the checklist that we have to prepare in terms of they don't fall into those brackets. So some of those things are coming in. Thank you so much.

[Tejash Shah, analyst]

Sure. And second last question. After many years, we are entering a new fiscal with a very positive sentiment. Sir, just wanted to know your sense on ground-level sentiment matters giving us this hope. Or you are also excited to regain the market share that we would have lost in the last 2, 3 years in our retail space?

[Lalit Agarwal, executive]

I'd say it's both, Tejash, definitely only a few people try doesn't come out, it is also to be fueled by the consumer aspiration by the demand, by the positivity in the market. So we believe both the things are happening. Even if you have demand and if you are not performing in the right way in the right direction, which the consumer wants, because it is no more a one-man land, it is a skit of competitor. It is a skit of multiple players, which are operating on the same road. So you've got option. Customer has awarded a option. So if you don't perform, you don't produce, if you are not efficient enough, if you are not compliant enough, you may lose the customer. So that's how the result is going to turn up into you.

So the confidence is coming more from the internal parameters and the internal levers and the internal excitement that the team has and the team -- the way team operates, the culture in which the V-Mart works at, and that's something which brings the confidence and definitely aided with the right timing, which is where I think now the consumer has to come back. Even the elections are going to bring in a lot of money. So we have been watching all of those. Some of those, we've seen that wherever the elections have got over and after 7 days or after 10 days, we start seeing good growth coming in from that market.

So some of those pieces are also being witnessed and are very clearly being seen. So I think some of these things definitely will fuel the whole economy because the economy was in a bad shape. It was little dumb, it was little dull post-COVID and since then, the inflation and stuff. They never got excited. Now I think things are coming by and we should see some growth coming in from this.

[Tejash Shah, analyst]

Perfect. And if I may ask one more. All the store shutdowns that we did, was there any element of any national fast fashion retailers do and specific being around in most of the store locations? Or it was -- it quite had nothing to do with any of this?

[Lalit Agarwal, executive]

As per our analysis, we keep a very, very close watch on competitor and the competitor-wise store performance and stuff. So we have been very, very clear. Wherever we have seen the brand name that you mentioned, those stores opening up, we have not got any impact. Only in Southern India, there are a few markets where we have seen, in fact, 1 year back, 1.5 years back. But that impact has also modified in this particular year, wherever they had stores, because they are now encroaching and embarking on their own store sales because they're opening and then cannibalizing more stores in the same territory.

So what we have found out is very, very few impact in Northern Indian, Northern India almost no impact. In the Southern India, there is definitely some impact that we've all witnessed. But not -- I don't think maybe 3, 4 stores in the Southern India could be because that the profitability or the losses become a little more sharper or a little more than what it used to be when we acquired. So we've taken the call because of -- maybe also because of certain stores like [indiscernible], which got opened or which are performing better. So some of those pieces happen in those particular territory, but other than that, no.

[Operator]

[Operator Instructions] The next question is from the line of Rishi Mody from Marcellus Investment Managers.

[Rishi Mody, analyst]

Can you hear me?

[Lalit Agarwal, executive]

Yes.

[Rishi Mody, analyst]

So a couple of questions from my end. The first one being the number of stores that we shut down, right? How much of annual savings in the bottom line are we going to see from these shuts in FY '25? And how many more stores are we planning to shut down in FY '25?

[Lalit Agarwal, executive]

So, Rishi, the annual savings, which have not got factored in the last year financials would be to the tune of roughly around INR 4 crores to INR 5 crores. I think a large part of the closures actually happened only towards the end of the year and very, very concentrated around March itself.

So these savings should not exceed that. But more importantly, as I mentioned during the opening remarks, the focus is to ensure that we have the right capital allocation. So we focus the energies towards more profitable and more growing stores rather than laggards. In terms of the closures for next year, there is no fixed number identified as yet, but because we are on a cleanup speed, and we had closed some stores the year before and also in the last year, we will want to make sure that anything which is not meeting the threshold norms, which is not meeting our standards, gets to pull up its pants and start performing or we sort of make it to exit. So I think not more than 5 to 7, but there is no number or names identified as yet.

[Rishi Mody, analyst]

Understood. And how many new stores all are we planning to open up in the coming year?

[Anand Agarwal, executive]

So I think we should be looking at between 40 to 50. We would definitely want to open more, but let's see how it goes.

[Operator]

The next question is from the line of Lokesh Manik from Vallum Capital.

[Lokesh Manik, analyst]

My question was just going back, if we see 2018 was the peak performance year on all metrics for V-Mart. And then since then, we have gone through a lot of ups and downs on the macro side and internally as well in terms of the reorganization of the company and institutionalization of a lot of departments. So my question was, do you see us on going back to those metrics, hitting those metrics in the next 2 to 3 years, whether it be an ag and their expenses or store metrics for that matter? That's my first question.

[Lalit Agarwal, executive]

So, Lokesh, I don't want to...

[Anand Agarwal, executive]

Definitely, we want to reach to those numbers who are our three numbers. But yes, we've acquired a lot of other things also in our market whether it is Unlimited stores or the stores that -- or the online retail that we have acquired. So not everything could reap in same results, and the market is also not the same because there are definitely lot of more players who have come into the market.

So the overall percentage that you could save or the sales per square feet that we could generate will take some time. Definitely, the path has to be taken up, and we are taking those paths. Maybe -- I mean, at that time, we had clocked around maybe 790 square feet. So we may not reach that figure immediately. It may take for us maybe around 2 years whether we go, we surpass the 725 number and come to 750. So that's the idea that we have, and that's what we will do. But yes, hope for good. If you guys predict and you guys feel that the market is really going to boom and the market is going to be better, maybe we plan a little more higher growth in sales and then draw some more inventory and then achieve those.

[Lokesh Manik, analyst]

Great. Great. Lalit ji, my second question was on the gross margins. Given that you said that you have Unlimited in your growth. So your business model is somewhat also changed in terms of moving from low price point to high price point product. Do you then see that you need to improve a lot on your gross margins, given that your corporate structure has also changed from what it goes in 2018, up until now, to accommodate those changes. I'm not really deviating from a policy of core pricing around this policy.

[Lalit Agarwal, executive]

Lokesh, I don't agree with you. We've never been in this side of the gate where we have tried to surpass our overheads through our gross margins. Our overhead should be catered by our volume and our expansion or our rate of growth or our number of stores that result into more profitability.

So I don't think we have done anything such, which is resulting into a higher overhead products. Definitely, there are a few initiatives that we have taken. We are also being very, very conservative, and we are being very, very efficient trying to become efficient in those areas where we had those extra slippages, which were coming in.

So we are trying to be very, very focused on aligned with our customers' requirement where we've understood that they don't want us to charge more. They can't pay more. We can't increase the ASP. So we can't increase the gross margin also. We will have to definitely deliver better and better quality. We have to deliver the best fashion at the prices which are most effective and most -- the best prices in the market. So definitely, percentage of gross margin cannot go up and we will not target that. We will definitely want to target a huge higher volume and more rupee gross margin from the same store. That's our approach, and that is what we should try and do, which is sustainable also.

[Operator]

The next question is from the line of Bhargav from AMBIT Asset Management.

[Bhargav Buddhadev, analyst]

Sir, my first question is that, obviously, in FY '24, we've taken price corrective actions, and we've seen a decline in ASP. Starting FY '25, do you think there is still any need to see any further price corrections or we are done away with that?

[Lalit Agarwal, executive]

So Bhargav, we already commented that we have done away with all of that. We don't want to do any price correction now. But definitely, there is a choice that the customer has. And as I said in my opening remarks also, the consumer is choosing a little lower-price point product more versus a higher price point product.

So the mix between the product purchase or the product purchased by the customer can get a little tempered and that may effectively resultantly be -- you may see a little lesser ASP, but I don't think there should be a lot of shift. We are very, very clear on this. We have already done our part. Now we have to only put more effort and we are -- as we are doing it on quality and fashion parameters so that we are able to cover the customer more and more.

[Bhargav Buddhadev, analyst]

And secondly, sir, we've seen a significant jump in terms of footfalls. So in your opinion, is the price cut a reason why the footfalls have been coming in? Or is the merchandise change which is leading to higher footfalls?

[Lalit Agarwal, executive]

So I think there are 2, 3 factors. The biggest factor of it is actually the -- I mean, we have been doing it for multiple months, but still there are regions which we're still not recording the right football and the way of recording right football is manual. There are, at times, a lot of mistakes which happened. So there is some part of correction, which is there -- which has resulted into some number which is going -- which is being seen.

But other than that, definitely, as you know, there are more number of stores on the same road. The customer always keeps researching their products. So they want to try all the stores, look at all the stores so that the cumulative footfall becomes lower, but the individual stores do receive a higher footfall. So some of those footfall do come in. And definitely, when you have a little new style of merchandise or new designs of merchandise, we do see some customers who are -- who whereby after some time, but they do want to come and visit and see the product because the youth normally do that more, more and more open because they don't have money in the pocket. They'll come and see the store, research to the product and then ask my store guy, please [Foreign Language] and we'll come back and then buy it again. So there are those pieces that also have started happening as I said, the youth is becoming more active and it is becoming more mobile.

[Bhargav Buddhadev, analyst]

And sir, my last question is that we've seen the contribution of V-Mart rising in LimeRoad's overall revenues, now at around 25%. Where do you think this can settle maybe in the next couple of years?

[Lalit Agarwal, executive]

We don't know, but anyway, I mean our goal is to increase omni. We would definitely want to have at least 1/3 share coming in from V-Mart revenue in LimeRoad business. So that's definitely. But yes, as V-Mart ASP is also very low, it becomes very difficult to drive profitability out of that kind of ASP. So we have been very conscious in trying to balance this also.

[Bhargav Buddhadev, analyst]

And sir, fair to say there's no extra discounting being offered, right, on that channel?

[Lalit Agarwal, executive]

Zero.

[Operator]

The next question is from the line of Sameer Gupta from India Infoline.

[Sameer Gupta, analyst]

Congrats on a good set of numbers. So I have two questions. Firstly, on the Unlimited part. So out of the 74 stores that you had acquired in Unlimited, how many are still there? And how many have you closed? And sub-question to this is, what is the margin profile of the new stores that you're opening in Unlimited right now, and this is pre-Ind AS I'm talking? And what is the margin profile of the legacy stores that are remaining that are still functioning?

[Anand Agarwal, executive]

Sameer, so out of the 74 stores that we had acquired, 58 stores, we are still running and this is after multiple rounds of assessment, multiple rounds of closures. So it's not that only the closures have happened in the last quarter of last year. We -- we closed a few stores in the last year as well. We closed a few stores this year.

So the objective is not to close everything, but the objective is to make sure that we are running the most optimal and the most growth-oriented stores. So the new stores that we have opened, as I've been speaking for the last couple of quarters, the new stores that we have opened are giving definitely a much better sales per square feet even than the legacy stores, the difference is almost to the tune of around 15% to 20%.

Now it's been just 1 year or 1.5 years, since the time these new stores have opened. So we would definitely want to wait and watch the sustainability of this delta sales per square feet, but whatever we are seeing so far is giving us a lot of hope and optimism that this is something that we would want to build further on.

The big difference also is that the new stores that we have opened in South are largely in Tier 3, Tier 4 locations versus the legacy stores, which were in Tier 1, Tier 2 locations. Tier 3, Tier 4 format is something that we have always specialized in and is also giving us good results in South.

In terms of the margin profile, just because of the delta, 15%, 20% sales per square feet difference, the EBITDA margins or the store level EBITDA margins in the new stores is almost at par with V-Mart, in fact, even better than V-Mart stores in general. Because the rental that we are also taking in these stores is exactly in line with what the V-Mart model is, which is roughly around 5% to 6% of revenue versus for the legacy Unlimited stores where the rental is almost 12% to 15% of revenue. So that's the big difference.

[Sameer Gupta, analyst]

Sir, the 58 stores, this whole mass of 58 stores is still at an EBITDA loss at a [indiscernible] level?

[Anand Agarwal, executive]

No, they are not at an EBITDA loss. They are in black.

[Sameer Gupta, analyst]

And marginal profit, I would assume.

[Anand Agarwal, executive]

Yes, roughly around 4% to 5% profitability, EBITDA level.

[Sameer Gupta, analyst]

That has improved so much, cool. That's helpful, sir. Secondly, sir, on the gross margin, right now on a Y-o-Y basis, if you look at this quarter's gross margin, it is kind of flat. But even if you compare with 2Q, generally, 2Q to 4Q, the gross margins don't change much and this part of inventory correction, provisioning, et cetera, and ASP reductions that has kind of continued since 2Q. So just wanted to understand this decrease in gross margin like a 300 -- 200 to 300 basis points decrease here. I just wanted some color on this.

[Anand Agarwal, executive]

See, largely to also understand the base impact. See, last year, the provisioning that was required to be done probably would have been done on these stocks that we would have purchased during COVID times, so 1 season -- 1 year back or 1.5, 2 years back. Now at that point of time, the level of inventory that we were carrying because of the omni situation was slightly lower. Our inventory levels were much lower, and therefore, the provisioning required last year or the liquidation also that was required was slightly lower versus what was required this year.

It's not a very big difference. This is, as I mentioned in my opening remarks, the inventory is quite healthy, and we remain very much in control of how we want to drive the inventory. The freshness and the sell-throughs we are getting is extremely good, and that is reflected in the same-store sales growth that we are getting. So not too much of a concern. I think provisioning is also transitory. So it always comes back once you liquidate these stocks, so that's not a big issue for us.

[Sameer Gupta, analyst]

And the extended winter in the Northern and Eastern regions that didn't help.

[Operator]

Sorry to interrupt you, sir. I request you to come back for a follow-up question. The next question is from the line of Ankit Kedia from PhillipCapital.

[Ankit Kedia, analyst]

Also three questions from my side. First is on the Unlimited inventory. In your opening remarks, Lalit ji, you mentioned you experimented with lower price inventory in South, and we have got very good response. Our check suggest that these are unlimited branded inventory, which we have done and with only a handful of stores. And if the response is good, do you think in the coming season, you will roll it out across that 70 stores of Unlimited and that could further bring the ASP down for Unlimited?

[Lalit Agarwal, executive]

So it is just not that inventory period, Ankit. So definitely, that is one inventory that I have experimented, as I said about the revenue collection that we have launched and also some labeled where Unlimited is enabled. But there are also other stuff, which is in terms of the entry-price point inventories, some promotional products, which are the lower ticket items, which we used to do in V-Mart. But when we started earlier, we thought that this South media customer is a little different, they are more premium.

We want to give them a little more premium products, which didn't work for us in the first year. So that is why we changed our strategy and we brought in some more inventory lined up with the similar thought process of V-Mart. And which is now like then, we are able to see a lot of customers coming back from those inventory. So I think there also, we have done our ASP piece, but still it may go a little bit down. But we are definitely getting those responses by increasing the volumes, and this is what we wanted. And there's a good volumetric growth that we have seen in this quarter is also in Unlimited markets.

[Ankit Kedia, analyst]

Sir, second question is on the inventory. Even now, if I look at inventory on COGS, all on sale, whichever method, it is still higher compared to pre-COVID levels. Now we are invested in a warehouse also so that a supply chain efficiencies and inventory over the medium term reduces. You have spoken a lot in your opening remark on inventory being fresh, healthy at the store level collection. Now to go back to pre-COVID levels and lower, do you think the next 1.5, 2 years, they can aim for that? Or it will take longer now given the current demand environment?

[Lalit Agarwal, executive]

Ankit, we will definitely want to do it. One thing to be very, very clear that before COVID, we never used to have this partner brand inventory at our Unlimited stores, which has taken up because there we are a little liberal, because those inventories are primarily agreement is that you will return back those inventories, the inventory don't sell back. So we do have a little higher stock of those inventory because the average size of the store in Unlimited is also a little larger, and we want to keep those inventory. Those inventory form almost 15% of the total inventory, yes. So that is one big chunk which makes it a little distorted.

But other than that also, I think it is more about sales per square feet. It is not the inventory per square foot, which has grown. The sales per square feet has to come in line with that. And on that, I think we are on the journey and we are on the path. So we will -- if our same-store sales growth grows and we are able to clock the sales per square feet, I think it will -- the average is going to come back, because see, the store when there is a store, it has to have a particular piece of inventory or our density inventory. That is how we are aligning. But yes, definitely, we are being very, very conservative, and you must have seen that we have improved our working capital and our inventory days also year-on-year and we are improving it very, very sharply.

[Ankit Kedia, analyst]

Sure. And sir, my last question is on the LimeRoad loss guidance. Last year, you have met the loss guidance what you have seen lower than that. For FY '25, while you're cutting losses at the cost of growth now, so what should we model from a LimeRoad losses perspective?

[Lalit Agarwal, executive]

I think definitely, see, we should model that we should not go beyond 40% to 50% of the loss that we can do this year. So we should not do that as our maximum plan, and we have not reached that also. So it should be relatively half or more -- less than half the loss should be.

[Operator]

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

[Shirish Pardeshi, analyst]

I'm just trying to read on Slide 10. This tier-wise number what we have given. It seems that tier 1 and tier 4 is doing better. But Tier 2 and Tier 3, we still have a problem and it's growing 6% and 1%. So is the number of stores what we have closed is largely in this territory? Or there is some action which we are planning to take it further?

[Lalit Agarwal, executive]

See, there is an improvement, as I said in my opening remarks also. There is an improvement which has started coming. It is largely from Uttar Pradesh. You know that for Uttar Pradesh and Bihar, we had maximum number of Tier 3 towns. So these towns were not performing, and we were seeing a lot of competition also coming in this particular territory. And also the markets were not performing in this particular area. So some growth has started being seen both in the last quarter as well as this is in these months that we have seen after the quarter end. So I think as the economy or as the consumption pre comes in, this is the first town which should go and give us those results. And when they come back, we should expect the consumer sentiment is back into the market.

[Shirish Pardeshi, analyst]

So the reason I'm asking if I assume that the season has started well, and I think if over a period of time, things improve. And if this business comes in a positive or much stronger, it's not difficult for us to report more than 15%, 20% growth. Is the way we should look at it?

[Lalit Agarwal, executive]

[Foreign Language] I don't want to make that, but definitely, we love you if you make it happen.

[Shirish Pardeshi, analyst]

No, because larger chunk of stores are sitting in this territory. So that's why I'm asking.

[Lalit Agarwal, executive]

I do understand. I do understand. And that is very, very important for us. This is the most important territory, and this is where our focus is, and this is where we are working a lot. So we will definitely want to make it happen, but they think it's now there.

[Shirish Pardeshi, analyst]

Okay. My last question is on, in the beginning slide, you have said that footfall has grown 25%. And even when I look at the same-store volume growth is around 5%, but Unlimited is very starkly much higher at 26%. But the same slide I'm reading, our conversion rate has now fallen steadily. I mean it used to be plus 60% has now come down. In pre-COVID. it used to be higher of 16%. Now it is 49. So is there any vary because I'm saying that your transaction signed and average selling price, which you have already taken action by cutting the prices. So is there some metrics you can provide how we should monitor this number or maybe number?

[Lalit Agarwal, executive]

And I told earlier, this is largely a little bit more about the recording piece as we are becoming a little more analytical, a little more into the discussion on why the conversion is not happening or why the growth is not coming in. Then we are getting the number that actually we are not capturing the right footfall, we are not capturing the right footfall, the process of capturing a little different in a different region. So we've standardized among those. So that is where some of those pieces are being seen. But other than that, I think there's also some change where we see higher bigger family size coming in bigger -- I mean, even if they want to buy 1 on T-shirt, they'll have some people coming in.

So minimum rate of conversion cannot be more than 50% is what I see because [Foreign Language]. So you can't -- we can't expect that to be converted to 50%. So I think this is a genuine conversion. It doesn't give me any other picture, but it always also tells me that very clearly, we are having a good excellence overall process and we are getting customers. And if we get customers, we will definitely combine them. As I sold, the customer is becoming a little more research-oriented in the mindset also. They want to come and see and then buy later. Some of those activities are also being witnessed a little higher.

[Shirish Pardeshi, analyst]

No. The reason I'm asking, Lalit Ji is basically earlier you were focusing too much and spending a lot of time in UP, Bihar. Is that -- whatever actions and strategy you have implemented? Will it be directly that you will spend more energy on the market and the non-UP market?

[Operator]

Sorry to interrupt you, sir. I request you to come back for a follow-up question. The next question is from the line of Tanmay Gupta from Motilal Oswal.

[Tanmay Gupta, analyst]

Sir, I just wanted to understand that what could be the magnitude we should make a necessary growth to reach at the pre-COVID level of EBITDA margin of 8%, but the currently adjusting LimeRoad, we could be having around 2%, 3%.

[Lalit Agarwal, executive]

So see, definitely, it is a tough ask. But yes, we need to grow at least 8% to 10% for 2 consecutive years to reach to that level. So we should have that kind of growth. And then once we have that kind of growth, definitely, the costs have been constrained. There is a lot of work, which has been done. So around 8% SSG growth for the next 2 years should bring us to that level.

[Tanmay Gupta, analyst]

And sir, just to understand that the B2 SSG has been very higher than the value retailers. So what extra what they are doing, just wanted to understand on that way and what could be like we will be doing for that?

[Lalit Agarwal, executive]

Tanmaya, definitely, we are attracting our competitors. We understand there are a few good things that they have done. But yes, there are also a few things which are nonscalable, nonsustainable, which also they are trying to do, which we may not be immediately able to do. But yes, we are trying to put best in improving our own standards, our own benchmark. There are a lot of learnings that we do definitely have. And there are a lot of good things that we also want to continue with our own initiative.

Yes, I mean there are certain short-term minted initiative where if the products are being sold at investor price and then giving you a little bit of better offer to the customer. Sometimes the customer do want to go for that. But also, as I said, quality is going to be the sustainable parameter. We will want to focus a little more on those where the results may come a little, but yes, those are sustainable results, and we have always gone to sustainable results.

[Operator]

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

[Lalit Agarwal, executive]

Thank you, everyone. Thanks for asking very relevant question. Your questions do motivate us and makes us more interested and analytical in terms of our approach in looking at the business. These inputs are very important, keep giving those inputs, both online and offline. So these are very, very important.

The times are definitely very exciting, a lot of opportunity being seen in the market. We are also geared up. There's a lot of change in the organization. We definitely want to continue with some changes that we need to bring in, in our management, in our teams, in our ways of working, in our behavior. And some of those things have led us to these positive results. And then some of those things will also give us a better positive result. As the size of the organization become larger, it is not the same pre-COVID kind of organization we chose to operate now. So it has to definitely bring out its best and aisle for a higher rate of growth, but definitely not lose on certain grounds. So we are very careful of all of those. We continue to the governance, governance-focused, ESG focused. We want to have a very ethical and good business practices in our organization. Great, thank you so much for being there and listening to us.

[Anand Agarwal, executive]

Thank you.

[Operator]

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