V-Mart Retail Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Demand recovery is real but uneven: LTL growth was double-digit in most regions, but the East zone softened as Durga Puja sales shifted into Q2, and Telangana continues to struggle. Management sees promising sentiment in semi-urban and rural segments.
• Gross margin improved, but the company is willing to give it back: Better fresh merchandise sell-throughs lifted gross margin, yet management explicitly stated readiness to compromise on product margins to sharpen the value proposition and improve inventory turns.
• Unlimited is a two-speed story: New South India stores are performing at or above V-Mart margins, but older Tier-1 stores still track well below the norm with lower sales per square foot. The turnaround timeline is pegged at roughly two years.
• Manpower costs jumped 24% driven by higher minimum wages in Odisha and Jharkhand, increased incentives, and ESOP variable liability. Management frames this as a short-term risk that ultimately lifts state GDP and consumption.
• What to watch next quarter: Whether the company actually passes gross margin gains to consumers through sharper pricing, the pace of older Unlimited store margin recovery, and any minimum wage revision in Bihar.

Demand & Regional Performance

• Festive and post-festive tailwinds: Festivals were quite good, though the last few days fell short of expectations. Post-festival demand was very good, supported by the marriage season and winter sale.
• Winter was late but peaked in December: Temperatures were generally hotter than previous years, reflecting increasing climatic change, with lower peak winter days during Q3. Efficient planning prevented any adverse inventory impact.
• East zone dragged by calendar shift: A substantial part of Durga Puja sales shifted to the previous quarter, implicating relatively softer growth in the East zone this quarter. All other regions had double-digit LTL growth.
• South India is a mixed bag: Tamil Nadu showed good growth, while Telangana continues to struggle. Southern Tier-III and Tier-IV markets performed marginally better than Tier-I and Tier-II, reflecting successful replication of the V-Mart strategy into smaller towns under Unlimited.
• Northern India and UP recovery: Northern India saw very good growth because the base is lower and new fashion and quality initiatives helped. UP, which was struggling until recent quarters, has started growing again.
• Youth share is climbing: Youth share of business increased from roughly 22% to 27%, driven by greater liberty, empowerment, and ability to spend. The strategy to attract the Gen Z population will continue.
• Unorganized-to-organized shift is a tailwind: The betterment seen may be partly an outcome of unorganized share reducing and moving into organized share, helping value retailers who are nearer to consumer demand and provide real value and quality.

Lalit Agarwal: "The commentary that I am saying is not resonating with some of the other brands, some of the other companies that we have been speaking with and we have been knowing that. But yes, we are definitely seeing some betterment here."

Unlimited Turnaround: A Two-Speed Story

• New stores are working: New stores opened in the South under Unlimited are at par or even better than V-Mart stores on margins. All new stores are performing at or above the company average, and learnings from past store closures have been plowed back into decision-making.
• Older stores remain a drag: Older Unlimited stores track well below the norm, with lower sales per square foot and higher overheads because the catchment is more Tier-1. Pre-IndAS EBITDA for the older chain is still lower than the planned average.
• ASP has been deliberately cut: There has been a sharp drop in Unlimited ASP over the last four quarters, driven by a focus on bringing in more V-Mart-like product, lowering prices, targeting a more mass audience, and attracting more youth.
• Partner brand share will shrink over time: Once the consumer in the South understands V-Mart's proposition well, management will want to slowly and gradually decrease the share of bigger brands and partner brands.
• Two-year convergence target: Management believes Unlimited should be able to bring sales per square foot to the level of V-Mart, maybe in the next two years. Older stores are not loss-making and are profitable, though their profitability profile may be marginally lower.
• Unlimited headline growth understated: Unlimited had lower 6% growth despite an 11% LTL increase, due to the adverse sales base impact of 12 unprofitable Unlimited stores getting closed in the last year. The base quarter included sales of subsequently closed stores.

Margin Strategy: Value Over Margin

• Gross margin improved, but flexibility is the stated posture: Gross margin improvement came at the back of better fresh merchandise sell-throughs of new winter merchandise. On a go-forward basis, the company shall be prepared to compromise on product margins to make the value proposition even sharper for consumers and improve inventory freshness through higher inventory turns.
• Customer retention is the absolute priority: Management will try not to pass on inflationary expense increases to customers because the customer segment is extremely cost-conscious. The company will try to mitigate normal inflationary trends through efficiency improvements and volume-led improvements.
• Volume is the margin engine: Even if costs go up, the whole process of getting the margin has to be through higher volume and better same-store sales growth. A delta of 4% same-store sales growth always gives betterment to the bottom line if gross margins are constant. If pricing becomes sharper and full-price sell-through is not achieved, gross margins get compromised.
• Double-digit margin is a ceiling, not a target: Management does not want to surpass any double-digit margin numbers; it wants to retain that number and pass on value benefits to the consumer.
• No pre-COVID nostalgia: Management pushed back on comparisons to pre-COVID margin levels, calling it a comparison of the stone age with the digital age.

Anand Agarwal: "We will try not to. We will try our best efforts not to. Because our customer segment is extremely cost-conscious and we will want to, therefore, mitigate any normal inflationary trend through efficiency improvements and volume-led improvements. We will try not to pass on any more surprises to the customer."

Cost Pressures & Competitive Dynamics

• Manpower costs surged 24%: Driven by increased incentives, higher minimum wages (Odisha roughly 29%, Jharkhand roughly 22%), and increased variable component of ESOP liability. Higher focus on employee reward and motivation is intended to positively influence efficiency.
• Competition for employees is intensifying: More stores are opening, and money raised in the market via private equity and IPOs is leading to higher competition amongst employees.
• Minimum wage risk is framed as a short-term headwind: Management expects something may happen in Bihar because they are also at a low level, but does not expect similar sharp increases in UP. The long-term view is that minimum wage hikes will bring up state GDP, per capita income, and consumption, offsetting costs.
• Rental discipline is non-negotiable: Management is very clear that it will not chase locations with unsustainable rentals, even if competitors are taking those decisions. The company will be very conscious about rentals and location, and will focus on profitable store growth.
• Reliance is no longer the relevant competitor: Reliance has gone out of V-Mart's bracket because its average selling price is almost 60 to 70% higher than V-Mart's selling price.
• Organized share may be diluting: Within the organized share, because the number of competitors has grown to 12 to 15 players trying to open similarly, market share may go down within the organized segment, even as the overall unorganized-to-organized shift benefits the category.

Lalit Agarwal: "Orissa and Jharkhand were at a lower minimum wages compared to other states. They increased sharply. And there is a lot of activity happening in Orissa in terms of mining and stuff. But I do not expect similar to happen in U.P. But yes, something may happen in Bihar. Because they are also at a low. But that will continue. And that's what the risk that I have told and narrated that this is a risk, which is a short-term risk, but ultimately, it should lead to a higher GDP and higher per capita income."

Operations & Supply Chain

• Inventory health is improving: Inventory closed at ₹818 crores at 92 days. Technology-led improvements in designing, sourcing, quality control, and replenishment cycles have led to improved sell-throughs and better inventory health. This is still work-in-progress.
• Inventory days target: The company wants to reduce days of inventory cover by at least another 5%, coming down to 87 or 88 days.
• Warehouse is now stabilized: The new warehouse, which had initial operating challenges in the last year, is fully stabilized and helping improve overall supply chain turnaround times.
• Vendor quality journey has been tough: Bringing in change management with smaller entrepreneurs on compliance, sustainability, quality parameters, and scalability has been a difficult process. Workshops are being conducted across cities, and a quality and technical team helps vendors create better processes. Almost 20% of vendors have been blacklisted for not matching standards.
• Fabric and material prices are stable: Fabric and material prices are almost constant. Cotton prices have softened and remained in a very narrow range throughout the year. No big changes are anticipated in cotton pricing going forward, and oil has remained in a controlled range. No pressure is anticipated on the raw material front.
• Government policy is supportive: PLI schemes in the textile sector are bringing innovation, new fabric development, and new product lines. Factories are getting set up in apparel and garment sectors, and states are offering incentives for apparel manufacturing units including labor and capital subsidies.

Lalit Agarwal: "It has been a very tough journey, Lokesh. It has not been very easy to bring in change management in smaller entrepreneurs across India, and that is the toughest part of growing up and becoming organized."

Store Expansion & LimeRoad

• 21 new stores opened in Q3: 19 in V-Mart and 2 under Unlimited. Total tally now stands at 488 stores pan India, with 85 in the South.
• Full-year target of 50-plus net store additions: The pipeline for Q4 looks reasonably strong. All major one-time store corrections have already been done in the last year; going forward, the company should see only minor 1 to 2% closures on a need-to-do basis.
• Store count commitment is directional, not numerical: Management does not intend to reduce its store count and will continue to open a similar percentage of new store additions or square feet additions. When pressed on a specific 60-store target, management said they will continue to have similar targets and goals but did not confirm a specific number.
• LimeRoad is becoming the omni-arm: The strategy is to extend LimeRoad as the fashion-forward omni-arm of V-Mart, facilitating easy order placement by V-Mart customers through the LimeRoad app, initially for missing sizes or colors in offline stores, eventually extending to a bigger catalog beyond brick-and-mortar stores. More than 0.3 crore app downloads are happening at stores.
• Expense reduction from LimeRoad and store closures: Continued reduction in total expenses came from sustained significant reduction in LimeRoad online marketing expenditure, along with the favorable impact of closure of unprofitable Unlimited stores in the last one year.
• Future growth financed internally: Future growth will be financed mainly through internal accruals.

Guidance & Commitments

Key Metrics