Speaker #1: Thank you for joining us on Vishal Mega Mart Limited's Q2 FY27 and H1 FY27 earnings conference call. We have with us Mr. Gunender Kapur, founder MD and CEO; Mr. Amit Gupta, CFO; I hope everyone got an opportunity to go through our financial results and investor presentation uploaded on the company's website and the stock exchanges.
Speaker #1: We will begin the call with opening remarks from the management, following which we will have the forum open for question and answer session. Before we start, I would like to point out that some statements made in today's call may be forward-looking in nature, and the disclaimer to this effect has been included in the earnings presentation shared with you earlier.
Speaker #1: I would now like to invite Mr. Gunender Kapur, founder MD and CEO, to give his opening remarks. Thank you, and over to you, sir.
Speaker #2: Well, thank you very much, and a very good evening, ladies and gentlemen. very warm welcome to this call. I will briefly take you through the Q2 27 and first half 27 results.
Speaker #2: And some of the highlights, and then we will open the call for questions. starting with Q2 27 highlights, we delivered another strong quarter with revenue from operations growing by 14%.
Speaker #2: To, 3,399 crores. Our same-store sales growth stood at 5.4%. The festivals, this year, have shifted from Q2 to Q3. this has had an impact of 3 to 4% on our same-store sales growth.
Speaker #2: Adjusting for that, our same-store sales growth in Q2 has been around, 9%. Because of the shift in festivals, the first 9-month period will provide a more meaningful comparison, of festive performance vis-à-vis last year.
Speaker #2: I'm happy to report that we've had a strong start to the festivals. The festivals season is now panning out in Q3. And this has reinforced our confidence in the demand momentum as we approach Diwali and the wedding season for this year.
Speaker #2: Operating EBITDA for Q2, 27 was rupees 262 crores, which was a growth of 3.7% over last year, and a margin of 7.7% versus 8.5% in last year.
Speaker #2: Operating EBITDA growth was achieved despite lower fixed cost absorption during the quarter due to the shift in festive buying to Q3, of 27. Profit after tax adjusted for ESOP charges was rupees 172 crores, which is a 6.4% growth over last year, and PAC margin of 5.1% versus 5.4% last year.
Speaker #2: Impacted again by operating de-leverage due to the shift in festivals. performance was supported by the strength of our own brand offerings, our customer-first approach, and very disciplined execution.
Speaker #2: On the macro front, demand conditions remained steady despite, renewed inflationary pressure across key raw material categories, and a somewhat uneven monsoon. A differentiated merchandise compelling price positioning and deep understanding of customer needs continues to resonate the sharper with our shoppers, reinforcing the resilience of a business.
Speaker #2: I will, quickly shift gears to first half results and highlights for this year. Revenue from operations grew by 16.4% to rupees 7,126 crores, same-store sales growth stood at 7.7%.
Speaker #2: The shift in festivals has had an impact of 1.5 to 2% on same-store sales growth. Adjusting for that, same-store sales growth for the first half will be about 9.5%.
Speaker #2: Operating EBITDA for the first half was 649 crores, which is a growth of 12.5% over last year, and a margin of 9.1% versus 9.4% for last year.
Speaker #2: Again, the margin was impacted by operating de-leverage arising from the shift in festive buying, from first half to second half of the year. Profit after tax adjusted for ESOP charges grew by 15.8% to rupees 437 crores, a margin of 6.1% versus 6.4% for last year, this again was impacted by operating de-leverage arising from the shift in festivals.
Speaker #2: We continue to advance our store expansion strategy, adding 26 gross new stores during the quarter, and 53 new stores during the first half of the year.
Speaker #2: This takes a total store count to 844 as of September 26 end. And we now have presence in 582 cities across the country. In Q2, we launched the first pilot store of the long and co, a new apparel format catering to young affluent urban consumers, with a very distinct brand proposition, offering effortless fashion.
Speaker #2: Our trading area stood at 1.41 crore square feet, our private brands contributed 74% to revenue, in first half of 27. A quick commerce expanded to 781 stores across 532 cities in the country, and registered users on QuickCommerce crossed 1.5 crores, people across the country.
Speaker #2: Looking ahead, we remain focused on capturing growth opportunities while staying very agile in an evolving geopolitical and inflationary environment by strengthening our merchandise offering, enhancing supply chain efficiency, and maintaining disciplined cost management.
Speaker #2: We aim to continue delivering compelling customer value and sustainable and profitable growth. With this, I would request the moderator to open the floor for questions.
Speaker #2: Thank you very much.
Speaker #1: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press start and 1 on their touchstone telephone.
Speaker #1: If you wish to remove yourself from the question queue, you may press start and 2. Participants are requested to use their handsets while asking a question.
Speaker #1: Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, please note please restrict yourself to two questions per participant, and rejoin the question queue for follow-up questions.
Speaker #1: We take the first question from the line of Percy from IIFL. Please go ahead.
Speaker #3: hi. Am I audible?
Speaker #2: Yes, please.
Speaker #3: Yeah. sir, just one clarification. so when we say about, 3-4 percent impact of, festive, does that mean that, this gets transferred into three queues?
Speaker #3: So basically, this, 14, 15 percent kind of growth, becomes like a 21, 22 percent? Because 3-4 percent gets transferred from one quarter to the other.
Speaker #3: Is that the correct understanding?
Speaker #2: No, I think Percy, it means, more like you know, we had we've had to report 5.5% approximately same-store sales growth. Now, this will look like 9% if we were to adjust for these festivals.
Speaker #2: Because what's happened this year, unlike last year, is that two key festivals which is Durga Puja Dussehra and Navratras, fell this year in October, whereas last year they were for example, on 2nd of October, where the revenue was recorded in September month.
Speaker #2: So they've just shifted. from, let's say September last year to October this year.
Speaker #3: So, so my, my, my point, VK, that if in normal circumstances, if the season were not shifted, you would have done a 9% SSSG.
Speaker #3: So, if you have done, let's say, 5.5, this quarter, to achieve a 9% average for 2Q and 3Q, 3Q will have to be, sort of 12, 13 percent kind of a SSSG to get to that 9% average.
Speaker #2: Exactly, Percy. Exactly. Well, our goal is to achieve double digit. for the full year. So you're absolutely right. Q3 will have to be higher than 10%.
Speaker #2: as you rightly said, for, for the first 9 months, to, look like, double digit growth.
Speaker #3: Understood. And secondly, on gross margin, we haven't seen much of an impact yet. maybe because you're still held, prices with the vendors. now going into Q3, I'm sure that, the vendors will ask for a price hike given that inflation has become persistent.
Speaker #3: so what kind of, sort of gross margin impact, do we see, going ahead in 3Q, 4Q?
Speaker #2: Percy, we have accounted for all that, and we've been able to maintain our gross margins on account of cost re-engineering. across the board, and, I must say that all the vendors are charging the higher prices now.
Speaker #2: So therefore, we do not see any material impact further going into Q3 and Q4 of the year.
Speaker #3: So even if growth remains at 100, for the rest of the fiscal, we still believe that we would able to, roughly hold, YOY margins in 3Q and 4Q.
Speaker #3: And gross margin at least.
Speaker #2: That's right.
Speaker #3: Got it. Got it. Okay, that's all for, now. I'll come back in the queue if I have any further questions. Thanks and all the best.
Speaker #2: Thank you, Percy.
Speaker #1: Thank you. We take the next question from the line of Nihal Mahesh Jam from HSBC. Please go ahead. Nihal, please unmute your line and proceed with your question.
Speaker #4: Yes, hi. Good evening. Am I audible? Yes. Good evening, GK and Amit. two questions. the first one was just, on the results. If I look at the employee cost, there was an increase of just around 10 crores versus Q1.
Speaker #4: So fair to understand this is mainly related to mainly the ESOP expenses, or it is also the impact of minimum wages? And you can just call that out.
Speaker #2: So, Nihal, minimum wage increase happened in Q1, so there is no incremental impact on account of that. The increase in employee cost versus last quarter is on account of two things.
Speaker #2: One is the incremental ESOP cost, and second is the number of new stores that we have opened in the last two quarters.
Speaker #4: Go with that. That's very clear. And, and the second question was, in the opening remarks, you did mention about the fact that at least the festival started well.
Speaker #4: Just to understand with a lot of discussion around, El Nino and maybe some impact on rural spending, wanted to understand, are you seeing any initial signs of any moderation?
Speaker #4: Just double-checking that fact with you.
Speaker #2: no, not quite. we are, not seeing any, moderation in terms of, consumer and customer demand. As I mentioned, the, festive season for this year started now.
Speaker #2: and we've experienced some part of that with Puja in East, which fell on 20th of October. And Dussehra in South, which again fell on 20th of October.
Speaker #2: And the Navratra festivals. So we've not quite seen any, moderation as such.
Speaker #4: Very clear, GK. Just one quick final thing is that you did highlight in the Amnesty Meet about the smaller format stores which you've, you know, started piloting in Haryana and UP.
Speaker #4: Do you have any specific targets on the number of stores of that you want to open this year?
Speaker #2: firstly, let me, tell you that I'm happy to report that we have 18 such stores now. we have further added, two stores in Q2.
Speaker #2: both obviously in UP and Haryana. So as we stand today, we have 18 small format stores. I need just use this opportunity once again to clarify that the small format stores are relevant only for UP and Haryana at the moment, because in all the other states, we have significant opportunity even today to open a large number of the normal format stores.
Speaker #2: You know, our 18,000 square feet stores. So as I had mentioned earlier also, once the opportunity for the 18,000 or the large format store starts diminishing in a state, only then will we go and open the small format stores.
Speaker #2: Otherwise, our first priority is to maximize the number of large format stores in every state in India. So we are making good pro-progress. If I were to look at the national opportunity, there would be an opportunity to open upwards of 3,000 such stores across the entire country in all the states.
Speaker #4: Very clear. Thank you so much, Vishal, to us.
Speaker #2: Thank you.
Speaker #1: Thank you. We take the next question from the line of Harjit Kapoor from Investech. Please go ahead.
Speaker #3: Yeah, good evening. the first question was on the pricing. So, if you could just, indicate, you know, what is the broad level of weighted average, price increase that you would have taken, to kind of pass on this level of inflation, in Q2 as well as, you know, early Q3.
Speaker #3: you know, in the context of the fact that most of your pricing, that you take at least initially, the, you know, doesn't come at the lower price points.
Speaker #3: You hold the bottom price point. So just wanted to get a sense on, you know, what's the level of pricing, and incrementally post-festive, is there would, would you assume there would be a requirement for another round, you know, assuming you don't want to touch the pricing in the festival.
Speaker #2: So you're absolutely right. we had, said this earlier that at the opening price points, we are not taking any, price increases. Because our opening price point customers, the most vulnerable amongst all our customers to inflationary pressures.
Speaker #2: At the mid-price points, they've been very, very few price increases. All our price increases have largely been on the higher price points. we do not see any need to take further price increases at this stage.
Speaker #2: And, at this stage, there is absolutely no plan, to tinker with the pricing, even beyond the festive season.
Speaker #3: Got it. And, the second bit was, you know, are we seeing any, kind of, regional, differences, in terms of growth outcomes, on a like-to-like basis?
Speaker #3: you know, this is from the context of the fact that, you know, you know, rainfall has been challenging in certain parts of the, of, of the country.
Speaker #3: Maybe there are the demand trends are a little different from, you know, one region versus the other. So if you have any kind of, you know, you know, qualitative quantitative, you know, thoughts on, you know, on your growth, are you seeing any differences regionally?
Speaker #3: that's my second and last question. Thank you.
Speaker #2: So, so I, I would say that we've not quite seen any, demand, challenge anywhere. It's been quite even across the country. I must confess that what has been somewhat uneven is the rainfall across the different states in India.
Speaker #2: And therefore, the very temporary disruption that you have for a couple of days, when it's raining heavily, for example, in Northeast in certain months and so on, that does impact the revenue, but that's a very temporary one or two-day phenomenon.
Speaker #2: But the fundamental demand is, quite, consistent across the country.
Speaker #3: Got it. Thank you, Vishal. Yes.
Speaker #2: Thank you very much.
Speaker #1: Thank you. We take the next question from the line of Videesha Sheth from Amit Capital. Please go ahead.
Speaker #5: Hi. a couple of questions have been answered. just two more from my side. One is, when I look at the rental, rentals that have, I mean, the growth in the rentals, that was there in the first half, it is quite, subdued versus the retail area addition.
Speaker #5: Now, one aspect could be addition of stores in smaller town classes, but is there any element of, rental renegotiation for existing stores that's being undertaken?
Speaker #2: No, there is no significant element, of the rental renegotiations. your observations are absolutely correct. It is, showing, or demonstrating the fact that, large number of new stores have opened in Tier 2 and Tier 3 towns.
Speaker #5: Sorry. So we can expect similar or difference between, growth in rent versus recovery, growth in the retail area addition.
Speaker #2: Absolutely.
Speaker #5: Going forward. All right. And the second question was on inventory. now, what would have led to the improvement in inventory levels considering that ideally there would have been some stock up, before the festive.
Speaker #5: When I and this is when I compare, one edge versus one edge.
Speaker #2: no, Vishal. So there is no material change. It is just the impact of shifting festivals, from quarter to the quarter 3. Otherwise, there is no change compared to last year.
Speaker #5: so Amit, when I was coming from is that ideally in if I just calculate the inventory base, it would ballparkly 65 in the base period versus 59, 60 in the current, in first half of FY 27.
Speaker #5: So, is there no particular reason why the inventory level?
Speaker #2: Vishal, last year, by end of September, the inventory build-up has already happened. But this year, there is a three-week shift in festival. So, obviously, that build-up has happened.
Speaker #5: Build-up happened later.
Speaker #2: Okay. That's the point. There is no change.
Speaker #5: Got it. All right. And last one, if I may. Any initial now, it's just been one odd month, for belong and co. But any initial feedback, that you'd like to share on this thing?
Speaker #2: well, the initial feedback, I can only share with you some qualitative anecdotal field that I have from the store. people are loving the merchandise.
Speaker #2: Our, it's, it's very early days, but our conversion of football into the store, into purchase, is north of 50%. So, it's very, very encouraging.
Speaker #2: And, whilst it's just, just been a month, we have seen customers coming back to the store, to buy more stuff. So we are, very encouraged.
Speaker #2: Although we knew that a merchandise is, very, very contemporary and very fashionable and very relevant for the young, across the country, but we are getting more and more confidence around that.
Speaker #5: Okay. Got it. That was useful. Thank you.
Speaker #1: Thank you. We take the next question from the line of Prerna Jhunjhunwala from Dam Capital Advisors. Please go ahead.
Speaker #5: Thank you for the opportunity. my first question is on, gross margins. This quarter, you know, share of apparel and GM was higher, largely this could be on account of shift of, you know, festive season to Q3.
Speaker #5: While, that may, come back be, you know, unfavorable in Q3 going forward, largely because of, J-GM and SMCG purchases during festive season. So, could there be a further there could be a further decline in gross margins which we will have to take which we, which we could see going forward, due to shift in festive season impacting our margins temporarily?
Speaker #5: Is that possible?
Speaker #2: No, not at all, Prerna. It's in fact, the other way around. The two festivals that I mentioned, Pooja and Vaishara Pooja in the East and, Vaishara in the South, these are both essentially clothing festivals.
Speaker #2: People buy a lot of clothes. in Pooja, the clothing purchases go up very significantly. So since the festivals fell in the third quarter, we are going to see, significantly higher bias towards apparel in quarter 3 vis-à-vis quarter 2.
Speaker #2: Diwali, which is essentially a general merchandise and FMCG festival, is going to be in quarter 3. This year and it was in quarter 3 last year.
Speaker #2: Amit, you want to add anything?
Speaker #5: absolutely right. So, Vishal, what you see are 30 dips drop or Prerna, you see a 30 dips of drop, compared to last year on gross margins.
Speaker #5: Out of that, 20 dips is on account of shift in, apparel business from Q2 to Q3. Okay. Okay. And, this, we actually saw an improvement in apparel, mixed this quarter, on a YOI basis.
Speaker #5: So, this could be on account of what reasons? It's just a follow-up on this.
Speaker #2: I'm not too sure where you are looking at it, but as we have explained it earlier, this quarter, Q2, because of shift in festival, actually apparel mix is lower compared to last year.
Speaker #2: yeah, I mean, that's a shift of apparel business. So the right way to look at it is that, a large part of business has shifted from Q2 to Q3, and most of that is apparel only.
Speaker #5: Okay. Understood. And so second question is on belong and company. belong and belong format, just wanted to understand what are your plans over here?
Speaker #5: How much store openings can we see for this format in this year? And what would be your store opening target for, this year as a whole for, both small format, belong, and Vish-Vishal Mega Mart?
Speaker #2: so, Prerna, at this stage, on belong and co, we are still learning. we've opened a pilot store. A future plans will, direct entirely upon the experience that we have.
Speaker #2: In a few stores, that we will open this year, for belong and co. we are on a learning curve. I'm sure there's lots to be learned for us before we start rolling out this format.
Speaker #2: So I will, at a future date, come back to you on the belong and co question. Otherwise, on the, large format and the small format, we are, quite confident of our guidance of opening more than 100 stores this year.
Speaker #5: And in this, it will be fa I mean, the small format stores, should it see a increased opening, or we should assume smaller number on this format?
Speaker #2: So the number will continue to be lesser than the large format. because as I mentioned, the small format stores are relevant at this stage only for UP and Haryana.
Speaker #2: Whereas the large format stores, we are opening in all parts of the country. And specifically, we are expanding into states like Kerala. At a fast pace.
Speaker #2: So I think it'll be more biased, towards the larger format stores.
Speaker #5: Understood. Understood. Thank you. I know that.
Speaker #2: Thank you.
Speaker #1: Thank you. Participants who wish to ask a question, please press star and one. We take the next question from the line of Rahul Agarwal from Ikigai Asset.
Speaker #1: Please go ahead.
Speaker #4: Yeah, hi. Good evening. One of clarifications, one is on the newer store additions, TK, how should we think about it more, you know, next two to three years?
Speaker #4: I understand absolute targets are about more than 100 stores this year. But if I, you know, if should we think it as a percentage basis, that your retail area should grow at least 13, 14% every year?
Speaker #4: Or should we work with 100, 100 stores addition per year? This is more medium term. And second is on the margin side, I think we've discussed it in the past, but again, from our next two to three year perspective, most of the investments will get into for growth, and hence the, you know, the not a very high operating leverage is what we should expect you know, let's say next two to three years.
Speaker #4: So margins should be like you know, be very steady state when we compare it to last year's fiscal 26 going up to 28 and 29.
Speaker #4: So just clarify on these two questions. Thank you.
Speaker #2: Good. Thank you very much. On the new stores, are, Endeavor would be, to open 100-plus stores every year. And every year, we would, target to beat the previous stores store opening, count.
Speaker #2: so while I would say that at this stage, we would, urge you to look at the absolute number of stores, but it'll keep accelerating every year.
Speaker #2: from the previous year, the Endeavor, of course, is to open as many stores which are profitable and viable in a particular year. just to remind ourselves, we have a clearly identified universe of 2,000 large format stores which we can open.
Speaker #2: And at this stage, we are at 50-odd. So there is a significant white space and runway for growth. And, as you know, we are, quite profitable, and we have significant cash on a balance sheet.
Speaker #2: So we will maximize the number of store openings. Both for the large format and for the small format in UP and Haryana. so I would urge you to think about it in that fashion.
Speaker #2: And, I can only assure you that, we will open more stores every year, as compared to the previous year. And the number would be, 100-plus.
Speaker #2: and then the next year, we would try to make it 100-plus-plus. And in the following year, 100-plus-plus-plus. So I hope that is a satisfactory response.
Speaker #2: But that is the way we are approaching it. We are quite determined that the new stores should not be diluted in any which way.
Speaker #2: They should be as profitable as our stores have been. And that we do not waste any capital in cl in opening a large number of new stores, and then shutting them.
Speaker #4: Got it. And on the margins, VK?
Speaker #2: Margins, I would say that, see, we've been benefiting from operating leverage. consistently across the board. Our Endeavor would not be to improve our gross margin, because there, we have said a few times, publicly that whatever operating leverage we generate on the gross margins, we would reinvest that money into improving the quality of our products.
Speaker #2: every quarter. And we've been doing that every, every quarter for quite a few years now. And that is what, creates a virtuous cycle of growth for us.
Speaker #2: But on the EBITDA margin, we would see an improvement every year generally speaking. I'm saying because our growth would be double digit, whereas our cost inflation at the store level would be 6 to 7%.
Speaker #2: And that would probably improve our EBITDA margin by 30 bips every year.
Speaker #4: Got it. Thank you so much. And, festive greetings to both of you. Thank you from the back.
Speaker #2: Thank you very much. Really appreciate that.
Speaker #1: Thank you. We take the next question from the line of Vaibhav Mulay from Highton Securities, India. Please go ahead.
Speaker #4: hi. Thanks for the opportunity. congrats on a good set of numbers, TK and Amit. my first question was on our store addition strategy. we have had a 25 stores, in this quarter out of which, I believe 23-odd stores are into newer cities.
Speaker #4: and majority of store additions are again into southern market. So, just wanted to get more clarity in terms of how are we looking at adding more stores, whether we are planning to penetrate deeper into existing markets, or, focus will remain on, entering into newer cities going forward.
Speaker #4: And how much focus remains on south as a market. And particularly which states, where we are planning to expand our footprint. That's my first question.
Speaker #2: Okay. So I can give you a quick breakup of our new stores. we have opened 26 new stores in quarter two, of which 15 have been in South India, as you rightly mentioned.
Speaker #2: Five of these, or rather six of these, have been in Kerala, where as you know, we are expanding rapidly. And we now have a count of 35 stores.
Speaker #2: But our ambition is much bigger than this. of the 26, another five stores have opened in North India. we where we've opened, one, large format store in UP, one in Haryana, one in Rajasthan.
Speaker #2: and, one in Himachal. and four have been in East India. And two have been in, sorry, just, two have been in Western India. So this trend will continue.
Speaker #2: or further accelerate. So any new state where we are expanding rapidly, we'll see the highest number of store openings in any given quarter. But at the same time, we will continue opening stores in all parts of the country.
Speaker #2: secondly, I may just, also tell you that, as I mentioned earlier in, in, in a response to another question, 24 of these 26 have been in Tier 2, Tier 3 cities.
Speaker #2: we've added 23 new cities, all over the country. so I would, I would say that this trend will continue. if when, we go to a new state, there will be a somewhat disproportionate focus on that.
Speaker #2: But we will continue to strengthen our performance in every part of the country, every quarter.
Speaker #4: Understood, sir. just on the, follow-up on this, any plans to get into larger Tier 1 markets in future?
Speaker #2: Yeah, of course. we are, as you know, we are doing a large pilot in Maharashtra and Gujarat. And we have in as a part of that process, opened stores in Ahmedabad.
Speaker #2: We are opening a store in Baroda. We've opened a store store in Surat. We have opened stores in, Pune, we are looking at Kolhapur, Sangli, Shirdi.
Speaker #2: Yes. Of course. When we go towards new state, we will open stores across the board.
Speaker #4: Perfect. my second question was on our margins. you mentioned that you have reworked on your price architecture to protect gross margins during the inflationary environment.
Speaker #4: does this imply that next year, when the inflation normalizes, we can start seeing benefit on the gross margin fund? Which, ideally we can pass on to consumer to, generate better value.
Speaker #4: and that will help us to, ide-ideally improve our EBITDA margins via better same store sales growth. Is that the correct way to look at it?
Speaker #2: See, I may just clarify that, we have, not significantly altered anything. What I said is that we have not taken any price increase on the opening price points.
Speaker #2: As you know, opening price points are, are lowest price points. And typically, our customers who buy the opening price points are the relatively less affluent of our customers.
Speaker #2: So despite the inflationary pressure, we have not taken any price increase there. At all. Across all our businesses. In the mid price points, we have taken very, very few price changes.
Speaker #2: All the price changes are directed towards the higher price points. Where our customers are relatively speaking the more affluent customers. That is to ensure that we protect the most vulnerable sections of our customers from the impact of inflation.
Speaker #2: Now, you know that 75% of our revenue is through our private brands. Therefore, we have the ability to protect our least affluent ques customers from the impact of inflation.
Speaker #2: Now, firstly, I hope you're right that we will see, the inflationary, headwinds, somewhat, diminish in the next one year. If that were to happen, we would reinvest that moneys into further either improving the quality of what we are selling, or, or, passing it on to our customers.
Speaker #2: Especially at the opening price point levels. We would not want to inflate our gross margin. Our EBITDA margin will get increased by operating leverage where our growth, same store sales growth, is higher than the cost inflation.
Speaker #4: Understood, sir. That's perfectly clear. Thank you so much and all the best.
Speaker #2: Thank you very much.
Speaker #1: Thank you. We take the next question from the line of Jignesh Gore from Boston Research. Please go ahead.
Speaker #5: Hi, JK. Hi, Amit. just two quick questions. I know we've we've touched upon the store edition and area edition, across quite a few folks.
Speaker #5: So, just a different lens on this. over the last three years, our area edition has trailed our store editions, right? So if let's say, for example, last year, our store edition was 14 plus percent, in, in percentage terms, the area edition was only 9.8%.
Speaker #5: and that seems to be, the reason seems to be beyond the edition of just small format stores. it seems as if the overall, size of our larger stores or normal stores is also reducing.
Speaker #5: So is this the right reading? And, and should we see this trend stabilize at this point? At some point, or do we expect retail area edition to trail store edition?
Speaker #5: And what do you prioritize for? Do you prioritize retail area edition or store edition? I think that was my first question.
Speaker #2: Yeah, okay. So I'll take that on. see, firstly, our retail area edition and store edition are very deliberate decisions. And let me give you a few examples of that.
Speaker #2: When we went to Kerala, we from our original estimate, have almost doubled the number of new stores that we'll open. Because we discovered that, Kerala is not disaggregated large cities with, distances of 50 to 100 kilometers between them.
Speaker #2: It's an almost contiguous state, where the, there is no gap between one city and the other. And therefore, the population is spread all over the state of Kerala.
Speaker #2: so we decided to double the number of stores so that we are always close to everyone, but reduce the size of the stores. so it was quite a deliberate decision.
Speaker #2: And, we are very happy about that. Because, we are, we are going to be probably the, most differentiated and convenient shopping option for majority of the people in that state.
Speaker #2: Much more than, anyone else that we are aware of. Now, secondly, we went into a large pilot into Gujarat and Maharashtra. Now, what we know about Gujarat and Maharashtra is that the minimum wages in the state are the highest.
Speaker #2: the electricity unit cost is the highest. And the rental costs are the highest in the country. There but there, they are highest for a reason, which is that these are very affluent states compared to the other states in India.
Speaker #2: Therefore, to, as a hypothesis, our hypothesis is that from a lesser area, we can do more revenue because people are more, affluent and more densely packed into, into an area.
Speaker #2: and thus, we can make the PNL as profitable for ourselves or as any other part of the country. So that's our hypothesis. I'm, of the view that it's too early for us to come to any conclusion.
Speaker #2: but we are encouraged by what we've seen so far. So again, it is because of that hypothesis that we are opening somewhat smaller stores.
Speaker #2: in Gujarat and Maharashtra. And lastly, yes, as we as I mentioned earlier, 24 out of the 26 new stores that we've opened this quarter, are in tier two and tier three cities.
Speaker #2: And these cities, because of their lesser population, are viable for a certain area. And therefore, the stores which have been opened in these places, would be by definition, smaller in size.
Speaker #2: So it'll all be based on where we are opening the stores. We are quite keen to open 18,000 square feet stores, where there would be viable.
Speaker #2: Equally, if there are places of more expensive states, I guess some examples, where in a 15,000 square feet store, we can with a higher cost structure, admittedly, do the revenue of a 18,000 square feet store, we would do that.
Speaker #5: sure, JK. That's very helpful. if I were to push this further and say, like the guidance you have given for a 100 plus stores, and then increasing that every year by a little bit, is there a guidance that you have your for your own team for area edition, or do you solve for stores?
Speaker #2: I will, firstly solve for stores. I would, absolutely I'm absolutely clear that the area of the store, would be determined backwards from the catchment and the city where we are opening a store.
Speaker #2: Because it is a belief that we must have 100% viable and profitable stores.
Speaker #5: Fantastic. That's excellent. Thank you so much, JK, for the detailed explanation. changing. The track. my second question is on belong and co. just wanted to understand your perspective of, what use what, what, use case for a user?
Speaker #5: Are we are we trying to solve with this? and maybe it will be helpful if what do you consider as the core competition for that brand?
Speaker #5: the way you want to you want to position it to consumers. If you can shed some light on that, it will be helpful.
Speaker #2: See, I can definitely shed some light on, who I who are the folks that we are going to serve with belong and co, and what is our differentiation.
Speaker #2: who we are competing with will become somewhat obvious from my response. so we have finding that there is, a segment of young customers largely metro-based at this moment, more affluent than the average customers in the country.
Speaker #2: they are becoming bigger. And they are, seeking more aspirational offerings. And, more fashionability in the merchandise. but the aspirational content of the benefit is also terribly important for them.
Speaker #2: so, we want to play in every significant opportunity that the clothing market offers. So that's why we've launched this pilot store. So it's more urban, more metro-centric, more affluent customers, higher price points, but significantly, high on fashion fashionability compared to even the international standards.
Speaker #2: and, yeah, I mean, those are the customers. And we see these customers all around us in all our metro cities in large towns. So those are the folks that we are serving.
Speaker #2: You could argue that there are brands in metro, and large town India with store counts of 20 to 30. who serve these customers. So I suppose that would be the kind of competition, that we are envisaging.
Speaker #2: But the larger goal is to ensure that every significant opportunity which is serving which is emerging in the country and can become very significant in the future, we want to explore that and, we want to be positioned ahead of schedule, to participate in a big way in that opportunity.
Speaker #5: that's very helpful, JK. Again, thank you. Vishal and the team, all the best for the festivities.
Speaker #2: Thank you very much. Likewise, Vishal and family, all the best.
Speaker #5: Thank you. We take the next question from the line of Devanshu Bansal from MK Global. Please go ahead. Hi, sir. good evening. thanks for the opportunity.
Speaker #5: JK, you mentioned, that, you're not seeing any moderation in consumer demand, right? So wanted to check, as in, inflation is, sort of, real. so how is the consumer responding to it?
Speaker #5: Is th is there any noticeable shift, towards your private labels or, maybe consumers are purchasing more staples and lower discretionary, any, any light or comment, that you can sort of, help us better understand this?
Speaker #2: Oh, great. It's a great question. And I must clarify what I've said. see, I am not making a generic comment that our customers are generally speaking not going to get impacted by inflation.
Speaker #2: Everyone is going to get impacted by inflation. but if you see what we have done with our pricing, because of a pricing, we are cushioning our customers from the impact of inflation.
Speaker #2: So for our customers, on the opening price points, there's no price increase. There's no inflation. On the mid price points, there is no inflation because we've not taken price changes there.
Speaker #2: It's only in the higher price points that we have, tinkered with our pricing. Again, in a thoughtful manner. And, therefore, what, I believe is that our customers will not have any need to adjust, their, spends because of the raw material inflationary pressures, because through our products and private brands, to the extent that it's possible, we are cushioning that.
Speaker #2: but, it is not, my, submission that there is no price elasticity of demand. inevitably, there is price elasticity of demand. And, it is also seen in our numbers.
Speaker #2: for even this quarter, for example, in this quarter, quarter two, almost all our growth has come through market share gain. And not through our existing customers buying more.
Speaker #2: I have mentioned on the earlier calls that we have three sources of same store sales growth. One is, market share gain. The second is our existing customers buying more.
Speaker #2: And thirdly is, premiumization. In this quarter, quarter two, as we had expected, and as we've seen earlier also, in these inflationary, times, that our market share gain is largely through sorry, our same store sales growth is largely because of market share gain.
Speaker #2: And that is exactly what's happened in quarter two also.
Speaker #5: Got it. So, very, very helpful. secondly, JK, you did mention that, there is operating de de-leverage in the business. Just, because of the festive shift.
Speaker #5: but, our employee expenses up around 25%. This is, excluding the ESOP cost. And, even adjusted for festive shift, the top-line growth would have been closer to 18 odd percent, right?
Speaker #5: So, I guess there is some gap, between top-line growth and, increase in employee expense. So, going ahead, do you expect this to continue or, there are levers, which can help you sort of, beat this headwind in the business?
Speaker #2: Yeah, Devanshu, so, as you would have heard us saying earlier, that this year there is a significant increase in minimum wages. And, that is reflecting in the numbers as we speak.
Speaker #2: But, we haven't seen any, further increase in minimum wages in quarter two. So obviously, compared to last year, this year we're gonna see an elevated employee cost.
Speaker #2: But as we have called out earlier also, we, look into each and every line item in detail and ensure that whatever levers are available, we deploy and make sure that the impact is minimized.
Speaker #5: Got it. So I'll need just, small follow-up here. So at what level of SSD, do you feel that, we can sort of, deal with this higher employee expense?
Speaker #5: Maybe does that, 10% need to be 12%, maybe, to sort of help you protect your market?
Speaker #2: Anywhere between 8 to 10 is good enough to, offset this impact. This quarter, it is looking elevated because it has an impact of new store additions, increase in minimum wages, plus shift in revenue from Q2 to Q3.
Speaker #2: But, as we get into the subsequent quarters, the percentages will look all right.
Speaker #5: Got it. Got it. just last one from my end. the cash reserves are, pretty high, right, for us. even higher than the current, capital which is, invested in the business.
Speaker #5: the store opening target that we are sort of sharing, can easily be sort of, suffice by inter-internal accruals, that we are generating. checking if you could share some medium to long-term growth revenues, which can sort of, help, consume this large cash on the balance sheet.
Speaker #2: So, you know, I'll, I'll respond to that in two parts. Firstly, and upfront, I must state that our board is looking at the, the, the cash reserves that we have on our balance sheet.
Speaker #2: To ensure that, what is the best way, to deal with that. While ensuring that the business is never starved of, cash for growth or exploring, capability and capacity improvement.
Speaker #2: I can just throw some light on the deployment, plan. As I mentioned, firstly, we are going to open more stores every year as compared to the earlier year.
Speaker #2: you've heard us speak about the small pilot that we've launched with a new format. Of course, depending on the response, and our learnings, we would, need further, capacity expansion there.
Speaker #2: Thirdly, we have, commissioned a fully automated, very large warehouse in North India. We have plans to commission such warehouses. In, East India next, after that is South India.
Speaker #2: And, the last in the western part of the country. Further, I'm very happy to report that our quick commerce initiative is making good progress.
Speaker #2: And, we are operating, at a standard which is world-class in terms of delays and filled rate now. And therefore, we have further decided to invest in advertising and, digital media, aggressively now.
Speaker #2: And that is already started from Delhi. It'll get extended to, all parts of the country, very soon. So we have several opportunities to continue to invest very productively in the business.
Speaker #2: And, there are several opportunities for us. Having said that, I would, say that our board is, as we speak, engaged with this entire issue of the cash that we have on the balance sheet.
Speaker #2: And, as and when there's a conclusion, we would be happy to come back to you and report that.
Speaker #5: Thank you so much, JK. that's very insightful. Thank you so much.
Speaker #2: Thank you.
Speaker #5: Thank you. We take the next question from the line of Utkarsh Nopani from Anand Rati Shares and Stock Brokers. Please go ahead.
Speaker #2: yeah, hi. Good evening, sir. Sorry, just made one clarification. regarding your pricing strategy, so if we assume that the inflation pressure continue to persist, for the coming quarter, so, so is it fair to understand that we plan to, continue not taking any price hike in the lower price point category product, and partially taking price hike in the middle price point and fully passing it on, at a higher price point?
Speaker #2: And what proportion of our revenue comes from the lower, middle, and the premium price point, if you can, guide us? So, as I mentioned, that at the current level of inflation, we do not see any reason to take further price increases in the future.
Speaker #2: and, the second so whatever we've done, we've done. And that's good now. about 18 to 20 percent of our revenue would come from the opening price points.
Speaker #2: About 20, 4 to 25 percent of our revenue comes from the highest price points. And the balance lies in the middle, about 50 percent.
Speaker #2: Okay. And so if the inflation pressure persists, so, so we are open to, take the price hike at across the price point. Is that fair understanding?
Speaker #2: No, it is not a fair understanding at all. I'm absolutely committed to, protecting our opening price points. I'm, further, I'm saying that at the current level of inflation, our business does not need any further price tinkering.
Speaker #2: Whatever had to be done has been done. I want to maintain a stable pricing environment and not expose to, our customers to volatility in terms of our pricing.
Speaker #2: Okay. And so who needs the big pricing strategy? You expect the gross margin to be stable on a 505 basis in the second half?
Speaker #2: Yes, please. Okay. Thanks a lot. Thank you.
Speaker #5: Thank you. Ladies and gentlemen, we take that as the last question. And conclude the question and answer session. I now have the conference over to the management for their closing comments.
Speaker #2: well, firstly, thank you very much, for your, presence in this meeting. And, for your questions. I really appreciate the couple of hours that you've chosen to invest with us.
Speaker #2: it is indeed very inspiring and encouraging for us. I always, feel energized after our meetings because I find, your support and, positivity to be, energizing for me and all my colleagues in the business.
Speaker #2: and I look forward to catching up with, all of you either one-on-one or at, the next investment conference or wherever. And, till that time by, take care.
Speaker #2: All the very best. And I look forward to the next opportunity.
Speaker #5: Thank you, sir. On behalf of Vishal Mega Mart Limited, that concludes this conference call. Thank you for joining us. And you may now disconnect your line.
