V-Mart Retail Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Recovery taking hold, led by internal fixes: Consumer confidence is returning, especially in rural areas, but management attributes the strong performance more to correcting past internal mistakes than a broad market upswing.
• Gross margin story is mixed: Offline gross margin improved 0.6% YoY on lower discounting, but total gross margin fell 1% YoY due to an optical correction from LimeRoad’s declining commission revenue.
• LimeRoad losses shrink 63% YoY: The platform recorded its sixth straight quarter of improving EBITDA losses, now at INR 7 cr, as the company deliberately slashed marketing spend to build a sustainable model.
• Store expansion on track, closures nearly done: 21 new stores opened in Q2, full-year guidance of 55–60 stores maintained, and only 4–5 more unprofitable stores may close if they cannot be revived.
• What to watch next quarter: The impact of a delayed North Indian winter on festive sales, the pace of LimeRoad’s march toward breakeven, and whether the early festive shift pulled demand forward rather than adding to it.

Demand & Consumer Environment

• Rural leads, urban lags: Post-election, a slight recovery is visible with rural areas showing more positive signs, while urban consumption remains a struggle.
• Consumer impatience reshaping fashion: Younger demographics are driving a shift toward faster fashion cycles, demanding new styles immediately rather than buying durable, long-lasting garments. This behavior benefits organized value retailers who can refresh merchandise quickly.
• Government spending a confidence boost, not a cure: Direct benefit transfers and state-level appeasement measures are providing temporary income that boosts consumer confidence on basic expenses, but management does not view them as long-term sustainability drivers.
• Regional divergence: Eastern India, which received significant government disbursements, saw growth. Southern India performed well except for Andhra Pradesh and Telangana, which have not revived despite elections.
• Competitive intensity rising: More retailer stores are opening, and competitors are experimenting with newer merchandise and retail experiences. Premium and price-sensitive brands are struggling, while value retailers are enjoying a good run.

Lalit Agarwal: "They're so impatient-full. They are so desperate. They are now what I want to wear and what I want to wear today is what I need. So I don't want to play for so long that I want to play for 1 year, 2 years, 3 years, I'll get a bigger big brand."

Financial Performance & Margin Levers

• ASP up 4% on mix, not price: The increase in average selling price for apparel is purely a mix shift toward heavier fabrics and oversized fashion, plus an early festive calendar. No price hikes were taken.
• Expense discipline visible: Total expenses fell 3% YoY, driven by a 74% drop in LimeRoad marketing costs and continued reduction in offline marketing as loyalty traffic shifts to digital channels.
• Manpower costs rise with sales: Manpower cost increased 21% YoY, in line with sales growth, due to higher incentive payouts and ESOP variable components, reflecting a deliberate focus on employee reward and motivation.
• Inventory healthier than last year: Inventory rose INR 241 cr QoQ and INR 70 cr YoY to stock up for the earlier festive season, but days of inventory improved by 21 days YoY on better sales throughput.
• Fashion obsolescence a structural risk: As fashion cycles accelerate, the risk of inventory obsolescence rises for the entire industry. V-Mart follows a conservative provisioning policy where anything older than two seasons is provided for.
• Other expenses benefit from store rationalization: The 8% YoY decline in other expenses reflects lower LimeRoad logistics costs and the closure of Unlimited stores, partially offset by lease renewals moving to the interest and depreciation line under Ind AS 116.

LimeRoad & Omni-Channel Strategy

• Losses narrowing by design: LimeRoad’s EBITDA loss of INR 7 cr is down 63% YoY, the sixth consecutive quarter of improvement. Management is deliberately not buying revenue, instead cutting marketing to build a sustainable model.
• Platform repositioned as omni-enabler: LimeRoad is being built as the fashion-forward omni-channel arm of V-Mart, allowing offline customers to order missing sizes or colors through the app, with plans to eventually extend the catalog beyond what stores carry.
• Cost metrics improving steadily: Cost of operations, cost per order, and logistics costs have all seen sizable improvements over the last 3–4 quarters.
• Q2 seasonality distorts the trend: The marginal drop in V-Mart’s share of LimeRoad business in Q2 should not be over-read, as it is a seasonally small quarter for both online and offline.
• Breakeven still distant: Management aspires to reach breakeven but does not guarantee it, estimating another 1.5 to 2 years to minimize losses to a negligible level.

Lalit Agarwal: "So there is a cost to operate. So we will definitely want to reduce the losses, but I don't guarantee that we will reach to breakeven. Yes, we aspire. We want to reach out to there. Maybe it may take another 1.5 to 2 years, where we will almost minimize and make it negligible to further the losses at the LimeRoad level."

Store Network & Expansion

• 21 new stores, 2 closures in Q2: 16 V-Mart stores opened in the North and 5 Unlimited stores in the South, while 2 V-Mart stores were closed.
• Full-year guidance intact at 55–60 stores: Management is holding to its store expansion guidance, with a goal of adding 12% to 13% square footage annually going forward.
• Unlimited closures nearly done: Most unprofitable store closures are complete. Only 4 or 5 more may close during the year if performance does not improve, though management is hopeful of reviving them. The benefit of 12 Unlimited closures should start accruing in sales growth numbers from Q4 onward.
• Franchising not on the table: Management does not currently see an opportunity in franchising, believing its own resource-based approach is more sustainable, though it acknowledged one competitor has executed the model well.
• Capex per store not rising: An analyst noted higher apparent capex per store, but management clarified that renovations and stores opened in October are included, and average capex per square foot has not increased.

Competitive Positioning & Strategy

• Internal fixes, not market tailwinds, driving revival: Management stressed that the strong performance is led by correcting past internal mistakes, improving processes, understanding consumer demand better, and sharpening brand communication, rather than a significant change in the market.
• Youth attraction a deliberate win: The team’s work on store environment, unique product propositions, and brand perception has successfully drawn more youth customers into V-Mart stores.
• Competitor expanding the pie: A large competitor’s strategy is accelerating consumer behavior toward consumption and creating opportunity for other retailers, a trend management sees as an international phenomenon rolling out in India.
• No claim of share gains from premium: When asked if V-Mart is taking share from premium brands, management declined to comment, stating they are in no position to make that claim.
• Profitability pressure ahead: Management expects pressure on gross profit as fashion retailers pump in money and reduce margins to capture market share.

Lalit Agarwal: "Nothing extraordinary can be done. There could be extraordinary kicker and a tactical approach which one can take, which will only give a short-term quarter-on-quarter benefit. And that is not what V-Mart is all about."

Guidance & Commitments

Key Metrics