U.S. Markets open in 2 hrs 49 mins

Edited Transcript of VMART.NSE earnings conference call or presentation 4-Nov-19 5:30am GMT

Q2 2020 V-mart Retail Ltd Earnings Call

NEW DELHI Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of V-mart Retail Ltd earnings conference call or presentation Monday, November 4, 2019 at 5:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Anand Agarwal

V-Mart Retail Limited - CFO

* Lalit Madangopal Agarwal

V-Mart Retail Limited - Chairman & MD

================================================================================

Conference Call Participants

================================================================================

* Aayushi Mohta

CD Equisearch Private Limited, Research Division - Analyst

* Abneesh Roy

Edelweiss Securities Ltd., Research Division - SVP

* Aliasgar Shakir

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Ankit Kedia

PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst

* Anuj Sehgal;Manas Asian Equities Value Fund;Founder & Portfolio Manager

* Avi Mehta

IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary

* Chirag Lodaya

Valuequest Investment Advisors Private Limited - Equity Analyst

* Jignesh Kamani;Goldfish Capital;Research Analyst

* Kunal Bhatia

Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst

* Lokesh Manik;Vallum Capital Advisors;Research Associate

* Manoj Bahety

Carnelian Asset Management LLP - Co-Founder

* Mayank Sangani;ITI Capital;AVP - Investment Banking

* Parin Tanna;B&K Securities;Vice President- Research

* Pulkit Singhal

Motilal Oswal Asset Management Company Limited - Associate VP & Analyst

* Sabyasachi Mukerji;Centrum India;Buy side Analyst

* Saurabh Ginodia

Stewart & Mackertich Wealth Management Ltd., Research Division - Associate VP of Research and Strategy

* Shirish Pardeshi

Centrum Broking Limited, Research Division - Senior Analyst

* Tejash Shah

Spark Capital Advisors (India) Private Limited, Research Division - VP of Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(technical difficulty) The call is now being recorded.

--------------------------------------------------------------------------------

Parin Tanna;B&K Securities;Vice President- Research, [2]

--------------------------------------------------------------------------------

Thank you. On behalf of B&K Securities, I extend the warm welcome to everyone on the call. We have from the management team Mr. Lalit Agarwal, Chairman and Managing Director; and Mr. Anand Agarwal, CFO. I shall handover the call to the management to give a brief overview on the quarter's performance post which we will open the floor for Q&A.

Thank you, and over to you sir.

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [3]

--------------------------------------------------------------------------------

Thank you, Parin. Good morning, everyone. Welcome to the call once again. We are sitting in the midst of the high pollution this time, which is actually the tough time to the Delhiites.

But anyway, so the quarter went a little average. We would not call it a great quarter, and this is what was expected because there was a lot of hue and cry about economy. So we saw some pressure on the rural consumption. We saw this time the customer in the suburban or the semi-urban areas talking about the slowdown, talking about a little bad business environment because a lot of trading communities, the (inaudible) community was suffering from the liquidity crunch and it came out. But there's also some amount of cheers and some amount of expiration rise, which is being seen because of the little digitally-influenced customers who are trying to create a different side of the economy and trying to create a different consumption level.

So we are seeing average economy in this rural town because monsoon was good, agricultural income did not get impacted. So we find that side of the economy is almost good. It is only about the feel-good factors are low and then the trading community is getting impacted and so is a little bit of -- people are getting into silos and people are getting into that shell of not consuming out in open or saving a little bit for the future needs maybe because a lot of hue and cry by the media.So otherwise, I think there's nothing which is being witnessed, which is of concern or which is of problems in the market.

Industry-wise, I think retail has been doing great. Lot of retailers opening up stores in most of the Tier 2, Tier 3 towns. Even Tier 1s, we are able to see a lot of value retailer increasing in the market. A lot of consumption going to organize space. Organized industry is bettered and it is growing bigger. National chains like Reliance, Aditya Birla, Tata, everyone is trying to focus on the value side. We're seeing a lot of penetration of their stores in our markets in a lot of those territories. Not everybody is giving us a tough fight, but yes, they are trying to acquire some market share from those areas. And apart from that, those regional retailers continue to operate, continue to expand, continue to -- there are few retailers who have been doing good, there are few retailers who are struggling. So we have all kind of effects coming in. And for V-Mart, I think we have been focusing highly on our thoughts of the similar nature where we believe that the customer, the young -- youth and the young family who lives in these towns are much more inspired. And there is a temporary phenomena of low consumption, but I think it is going to go up and it is going to keep consistently up where in the consumption will grow for fashion. Customers are digitally influenced, customer want to consume better products, they are looking out for good fashion. We are getting surprised by the amount of fashion requirement which is coming in from the stores. The large demand of trendy products, which is coming in, which is actually driving the sales. So that is also keeping us on our toes where we are trying to fulfill their demands and trying to create a differentiating factor in the market where all the value players would provide basic and simple products, but we would edge out and providing the fashion products. So that's what our large focus is now on. And that's where we are focusing. We have done a lot of reorganization in our organization structure. We've done the zonal structure, which is coming into place. We have redone our front-end of visual merchandise. We have given the customers a better front-end experience of the store. So we are trying to improve on those areas of customer experience, trying to create a differentiating factor in the market and we are focusing very highly on fashion. So that is our primary objective.

And then we continue to invest in our new store expansion, and new store is what we believe that we had built up the capabilities. Now we are accelerating our rate of growth, so we have grown almost like 45 stores this year. Right now, at 253 stores as of now as I'm speaking. So in October month, we added around 15 stores. So we have -- we really pushed the pedal high on the growth path, believing that there is a consumption, which is going to grow in the market. And this is the right time for us to penetrate into those markets and keep growing. So that has given a little bit of pressure on the existing numbers, but we are working for the future and we will keep working on the time to come.

So I will request Anand to take you through the numbers and then look forward for your questions. Thank you. Thank you so much.

Anand, please?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [4]

--------------------------------------------------------------------------------

Thank you so much, Lalit. I think yes, the quarter has been fairly not so strong. But in terms of sales, I think while, we managed to put up a good show in terms of overall sales growth of 20% with a 1% like to like and a volume degrowth of around 8%, but the highlight of the quarter really was the growth in the ASP by 16% and the average size growth of around 13%. We opened 14 new stores last year same time. End of quarter 2, we were at 190 stores. And current year, we closed the quarter at 239 stores, so a net addition of 49 stores. In fact, we also closed 2 stores during the quarter. So actually, we added 51 stores in the last 12-month period, which is a big performance in terms of how we've grown the rate of growth of new stores. And there's been a lot of effort, which has gone into building up this kind of capability. So all the investments that we've been doing in terms of getting better people, getting more people, improving our logistics, improving our infrastructure, et cetera, is yielding these kind of growth numbers.

Overall, at a sentiment level, I think the market still remains slightly cagey. We've seen almost 9% growth in footfall. The conversion rates have also grown by around 0.5%. But looking at the volume degrowth and the growth in ASP together, I think the influence we've had is that the customer is getting more choosy, customer is demanding better product, more fashion. He's coming in more numbers, but buying lesser quantity but buying much better merchandise than he was earlier demanding. So there's definitely sort of a shift.

There's been reasonable amount of monsoons. The monsoons have been, in fact, better than normal. The pre-festive period, especially the September end period, was pretty encouraging. As we all know that the festive period was preponed by 12 days this year, so Durga Puja just happening in the first week of October led to good amount of growth in all the Eastern markets. In fact, West Bengal, which has traditionally not been our strongest market, grew by almost 30% plus on a like-for-like basis. Overall, East market which includes West Bengal, Orissa, Northeast accounts for almost 15% to 20% of the sales mix grew by 20% like to like. UP, which is our strongest market, had a 4% like-to-like growth.

I think the degrowth and some of the pain points which came about from the Jammu region because of the political disturbances there. And some of the other Northern markets of Punjab, Himachal and Uttarakhand, which led to the overall performance of like to like remaining at 1%.

But as Lalit mentioned, I think we still remain very, very bullish. We're still very hopeful -- we're still very -- we're playing for the long run and we still believe that the market is very, very wide. And if we look at the new stores that we've been opening, we are getting more deeper into the same cities and towns where we were earlier present, so reinforcing our beliefs that the market is still wide open, and we're getting good difference from each of these markets.

So if I look at the new stores that we opened, we opened 3 stores in West Bengal this quarter, 2 each in UP and Rajasthan and then some more in Assam, Meghalaya, Madhya Pradesh and Bihar. In fact, Meghalaya was the 18th state where we went into. And as I speak, we went into a new state Arunachal also in October. So a total of 19 states that we are present now in.

The festive period also showed a good demand in the Kirana segment. So while as a mix, overall the share of Kirana grew by around 1%, but that's largely driven by the festive demand.

As far as the margins are concerned, we were able to increase our margins by almost 200 basis points, which has largely being driven by better merchandise negotiating, better sourcing and improvements in technology and increasing the ASPs. Also the fact that we sort of slightly disrupted the market in August, which is traditionally the USS time end of season sales season time, we gave much lower amount of discounting. We gave much lower amount of discounting during the USS and that led to a slight improvement. We've been cash positive. We've always been cash positive, and we use the cash to negotiate much better payment terms with our vendors. And we acquired more customers during the quarter through more innovative promotions. So while as I mentioned, the footfall grew by 9%, but that grew even despite lower amount of discounting during the quarter.

Because we gave much lower discounting, we gave much lower USS. So there was a slight decrease in the overall liquidation during the quarter. But still, we maintained higher provisions for older stocks and, therefore, the shrinkage grew to around 1.5%.

(technical difficulty)

And that's the broad range in which we would want the margins to remain on a full year basis.

On the expenses side, because quarter 2 -- the end of quarter 2 was signaling the start of the festive period, we spent much higher amount of marketing. Marketing expenses actually grew by around 79% year-on-year, which was largely driven by how we look at the overall festival period panning out. Also, the fact that we opened 14 new stores in quarter 2 and a lot of -- in fact, 15 stores were due to open in October, we stepped up our investments in marketing. We stepped up our investments in logistics, in packaging, in manpower, et cetera, which is required to make sure that all of these stores get to a good start. So while the full potential of these stores may not get fully reflected in the quarter numbers, but I think there is a fair amount of expenditure, which we were supposed to do and which we did to ensure that these stores get up to a good start.

There's almost a 26% area addition, which has happened, and we crossed the landmark of 2 million square feet, which is again a big milestone for us.

If I look at the other expenses, there's again a slight increase. If I look at a like-to-like basis, excluding the impact of Ind AS 116 on the rentals, so if I look at a comparable basis, the other expenses have grown by 37%, which is slightly disproportional, but again, largely driven by advertising and other logistic expenditure.

There is also some amount of investments that we've done in building up our omnipresence. So we've launched omni. We've done a test marketing there and early signs look quite positive. There are also some organization changes that we've been talking about for the last couple of quarters. We've implemented a zonal structure. We've got more capabilities added up to ensure that we are able to sustain and scale this growth as we go along. So expenses look slightly disproportionate, but these are investments that we continue to do, and these are with a purpose of ensuring that we remain sustainable and we get to a scale. And the bandwidth that we have is scalable for even higher amount of growth.

If I look at the inventory, the inventory has been slightly -- has increased by 6 days over last year same quarter. Last year, we had inventory days of around 100 days. We have 106 days as of September end, again largely driven by the 15 stores and the festive period, which is -- which was due in October. So a large amount of that, that we've taken to ensure that we have adequate stocks lined up for the festive sales in the warehouse ready for dispatch, so that sort of increased the inventory. But otherwise, inventory remains well under control. And at an overall level, I think we're still targeting improvement of inventory days on a full year basis and the ensuing quarters should see some improvement coming in from there.

CapEx has been on plan. In fact, the new stores that we've opened have pretty much been on target, while from a targeted number, we might still be slightly short from our internal projections. But otherwise, I think the growth that we've seen in new stores has been unprecedented and the team has done a fairly strong job in ensuring that we were able to cash in on the festive season. And the large part of that 20% growth that we're seeing is coming in from the new stores.

As far as cash flow is concerned, we've been negative on the quarter 2. But that is in line with how our performance has been year-on-year in quarter 2 because that's the end of the lean period and the beginning of the festive period, so you build up inventory. So that's where the financials stack up.

A big change on the Ind AS 116 implementation, as we also spoke about that in the last quarter. Ind AS 116 came into force from 1st of April 2019 and essentially what it does is that we are now required to capitalize the future value of all the leases...

(technical difficulty)

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

Hello? Excuse me, sir, we're not able to hear you.

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [6]

--------------------------------------------------------------------------------

Hello?

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Yes, sir. We're not able to hear you.

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [8]

--------------------------------------------------------------------------------

Yes. So I was talking about Ind AS 116. So Ind AS 116 came into force from 1st of April 2019 and basically what it means is that we're required to capitalize the balance period of the leases on the -- as a right-of-use asset and a corresponding liability is created to balance it off. In our case, that reflects into asset addition of around INR 446 crores and a corresponding liability and a notional interest on that liability is also required to be accounted for and accrued, which is sort of impacting the PAT or also the PBT.

If I look at the comparable number, on the P&L side, while our rentals go down by INR 19 crores for the quarter, the EBITDA goes up by 19 crores. The depreciation goes up by 14 crores, which is a carve-out from the rental number. And interest is broken down into 2 parts: one is relating to the rentals, which is INR 5 crores, so total of INR 19 crores square off; and then an additional notional cost of interest on the liability that is created on the books of INR 450 crores, INR 445 crores. A notional interest cost of INR 8 crores is also included in the interest numbers, so that sort of pushed off the results or the productivity numbers by INR 8 crores. So total charge of INR 13 crores on the interest line for the quarter. But if I look at the same number on a YTD basis for first half, the rentals go down by INR 38 crores, EBITDA goes up by INR 37 crores, INR 38 crores, depreciation goes up by INR 28 crores and interest related to rent goes up by INR 13 crores, while the interest cost on the notional liability goes up by INR 15 crores. So for H1, the PBT -- the right way to read the PBT should be excluding the INR 15 crores charge. So that's how the results impact -- the Ind AS impact the number.

So at an overall level, Ind AS net on a balance sheet, INR 450-odd crores of change on the balance sheet and the net negative impact of INR 15 crores on a YTD basis on the interest line. So that's as far as the financials are concerned.

At an overall level, I would just want to conclude by saying that I think we are working towards a long-range plan. We've been building up the organization layers in the company, are building up technology, we are building up process. So to ensure that we achieve the 4-year, 5-year targets that we've taken, the infrastructure has to follow suit. And we are very optimistic on the overall size and scale of the market despite the competition coming in and the consolidation, which is happening in the market. I think we still remain very bullish on the overall prospect of the market.

So with that, I'll just conclude my remarks and open the house for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from the line of Akash Damani from Edelweiss.

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [2]

--------------------------------------------------------------------------------

Sir, this is Abneesh here. My first question is on the USS. You mentioned you have reduced the discounting. So my question is, have the other players also done the same in this quarter? And is this one-off so in the next USS, do you again expect that the discounting will be lower?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [3]

--------------------------------------------------------------------------------

Akash (sic) [Abneesh], so while this was an experiment that we did this year, it's not something that we will want to replicate every time. There's an experiment. And because we saw slight weakness in the market and the footfalls, especially during the USS time was slightly lower, we thought that the customers who are coming in, we would not really want to -- they're coming in, in any case to buy. So it's not something that we have decided as a strategy. We will take as the market comes along.

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [4]

--------------------------------------------------------------------------------

But what was the specific trigger that I couldn't get because your volume is down 8%? So in a weak market, when volume is down 8%, what was the end result I couldn't get?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [5]

--------------------------------------------------------------------------------

(technical difficulty)

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Hello?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [7]

--------------------------------------------------------------------------------

Yes, yes.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Sir, we're not able to hear you.

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [9]

--------------------------------------------------------------------------------

Hello?

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

Yes, sir, please proceed.

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [11]

--------------------------------------------------------------------------------

So I was just replying to Abneesh. So there's a pressure in the market. The volume is down, and this is what we are seeing because of the impact of a slowdown and stuff. But what we are seeing, which is motivating is the increase in the ASP and increase in the ASP is largely by 2 factors. One is that the discounting has gone down because in the month of August when every time and every year or every retailer was going on discount, we actually relied more on the fresh inventory and we wanted to give the customer the differentiated look and -- which worked for the company. We might have lost some ground on the quantity sales. But we actually got a higher margin there from there. But overall, we wanted to take the unique position of bettering our fashion merchandise, bettering our aspirational merchandise and trying to give the customer a very different experience on the product. And that's what we are trying to focus now on.

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [12]

--------------------------------------------------------------------------------

Sir, my second question is on the new store openings. So when I see the size of the new store, there's a very big range. So your smallest store in this quarter in terms of new opening was 5,646 square feet and the biggest was around 5x of that. So why is such a big range? Second, entry into Calcutta. So most of the expansion last few years has been in Tier 2, Tier 3 market. So what is the reason behind going into a big city like Calcutta?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [13]

--------------------------------------------------------------------------------

So, Abneesh, once again, we have not gone into Calcutta as such. We have gone into a suburban part of Calcutta, which is Barasat, which is actually district Calcutta, but it is not in main city. So we are not still targeting the main city. We are still targeting the smaller towns and the urban, semi-urban areas. So that is what our focus is. And I think there is some confusion in the size of the stores. We've been similar. They have been 1 or 2 stores, which have been a little lower and there is 1 store, which is a little higher. So I don't think we have targeted -- our average size is still around 7,000 to 7,500. But at times you get some property, which are smaller in size, so you accommodate because of the market area. And at times, you don't get some property, so you open around 10,000 or 11,000 square feet of store. Our focus still remains around 7,500 to 8,000 square feet and that will be our focus.

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [14]

--------------------------------------------------------------------------------

But in the presentation, Bengal size is mentioned 25,422?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [15]

--------------------------------------------------------------------------------

Yes. The presentation actually what you're seeing is the aggregate area of these 2, the retail square feet for each state. So Uttar Pradesh is looking at 13,661 square feet, but that is for 2 stores, it is not for 1 store. So the number of stores that have been opened in the quarter is 14, while we are looking at serial number 1 to 9. So that's the way you have to look at that number.

--------------------------------------------------------------------------------

Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [16]

--------------------------------------------------------------------------------

Sure, sir. Got it. And last one, sir, you spoke briefly on omni and you said the initial response is good. So could you give some color? And because response is good, will you become a bit more aggressive on omni? Or is it more just a convenience to your existing customers?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [17]

--------------------------------------------------------------------------------

So it is obviously, the intent will be to scale up omni. But right now in the phase in which we are in, we are still trying to perfect the model. When we get into a new territory, we are in a new format like we went into Tier 4. Similarly, when we are getting into omni, we are still trying to figure out what works for us, what works best for the customer. We've got the platform working, we've got the app working, we've got the customers now coming in. But we're not getting very aggressive in terms of our marketing or the positioning. I think we're still trying to perfect the model in terms of the operational efficiencies in our own strengths. We're trying to understand what is the customer preference when he comes to online and so on and so forth. So we will get stronger there, but it will happen in phases.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

The next question is from the line of Tejash Shah from Spark Capital.

--------------------------------------------------------------------------------

Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [19]

--------------------------------------------------------------------------------

First question pertains to if you give us some qualitative comment on how the festive season went by and how is the demand environment, in general, around season?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [20]

--------------------------------------------------------------------------------

Tejash, festival was good. We couldn't complain. See, this time, the festival you try to understand because we primarily operate in the Northern markets. And in Northern markets, normally when Diwali is in October, you don't tend to get the sales from the winter merchandise. The seasonality plays effect. So this time, this festival is just like a festival in October -- in 2017, when the Diwali was in October. So similarly, what happens is, this time, you don't sell too much of winter merchandise. And you will shift those winter merchandise sales to November. So that is how the festival was average. It was not high growth. But yes, we will anticipate a higher balance part of the Q3 wherein you will get a better marriage season and a better winter merchandise season. That is what we expect because winter is right now not on and it should be on just within this week.

--------------------------------------------------------------------------------

Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [21]

--------------------------------------------------------------------------------

Sure. Second, if we look at your business structurally and when we are small, there was a low base. But now on a higher base also, this 3Q concentration still continues to be ruling all fundamental numbers, be it profitability or capital efficiency both. So in your 4- to 5-year long-term -- medium-term plan that you are working on, is there any thought on that how to diversify this risk?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [22]

--------------------------------------------------------------------------------

Tejash, we are not doing business to improve our quarterly numbers or make our quarterly numbers look similar. This is how India behaves and this is how our consumers behave and that is the area we operate largely on and this is our strength. So we believe that our customer who are primarily small town customer and those who operate in middle and the lower middle-income group, they largely consume during festival and marriage. And that is how they will keep consuming. So we can't change their consumption pattern or we'll not move into any of such kind of businesses, which will try to drive sales on Q2 and Q4. So we will continue doing what we are doing. There may be some shift happening because of the geographical presence that we have. But I think largely, this is how it'll continue to have. So this is how we target our Q3 very strongly. And it will remain strong because this is when India consumes, I can't do anything on this.

--------------------------------------------------------------------------------

Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [23]

--------------------------------------------------------------------------------

Fair enough. Understood. And sir, just one bookkeeping question. What is the exact debt on books as on September?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [24]

--------------------------------------------------------------------------------

So the debt would be as on 30th September, it would be around INR 75-odd crores. That's largely working capital lines. In fact, only working capital lines drawn from banks.

--------------------------------------------------------------------------------

Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [25]

--------------------------------------------------------------------------------

And sir, is there any change in our philosophy of not depending on to debt too much to expand? Or we are -- because we're expanding so fast, we are okay to actually cross that line once in a while?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [26]

--------------------------------------------------------------------------------

No, no. Absolutely not. There's no change in philosophy. There is absolutely no change in the way we will do our business. And we will still continue to expand basis using our own internal cash accruals.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

The next question is from the line of Jignesh Kamani from GMO.

--------------------------------------------------------------------------------

Jignesh Kamani;Goldfish Capital;Research Analyst, [28]

--------------------------------------------------------------------------------

Just on the strategic part in 1Q and earlier quarter, rate competition from the regional player and this one organized player was very high. So we decided to be slightly aggressive on the pricing, which probably in the second quarter, as you said, you're focusing more on the better ASP and the lowest on the pricing. So any change -- are the competition is less? What is the change for the policy?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [29]

--------------------------------------------------------------------------------

I think we still continue to act very aggressive, and we don't want to just be aggressive on the price. We don't want to do a price war, but we want to be aggressive on the customer acquisition piece, which is largely from both the sides, which is 1, trying to attract the customer based on the fashion and the product that we are offering. And number 2, always try to reward the customer for coming us -- for being with us or coming to us. So maybe the loyalty process where the customers are getting repeated or even acquiring a new customer. So we want to reward the customer for a particular side because we are seeing sudden out support in the market on those slowdowns of media hype, which is being created. So we don't want our customer to get on to that. And we are trying to retain our customer and keep our customer with us. So we will be driving on both the areas. We'll not put discounts, we'll not try to show them that are giving out huge discounts or promotions, but we are trying to give them rewards and recognition whenever they are with us.

--------------------------------------------------------------------------------

Jignesh Kamani;Goldfish Capital;Research Analyst, [30]

--------------------------------------------------------------------------------

Sure. But is it safe to assume the company is reducing from the moment of regional player now compared to last year?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [31]

--------------------------------------------------------------------------------

I will not tell that. I will not say that because the regional players as you know, these players are really -- they call themselves organized, but structurally, in the organization, not everyone is able to pull themself up as far as the high number of store management is concerned. So there will be some regional players who are able to do that well and will be able to keep going. But there will be some who may not be able to control anything and then maybe really falling apart. So we don't wish them -- we will always wish them good luck and we'll always wish them to grow along with us because that's how the industry keeps growing. But yes, there has been pressure on certain retailers. But in spite of that, certain retailers are doing good.

--------------------------------------------------------------------------------

Jignesh Kamani;Goldfish Capital;Research Analyst, [32]

--------------------------------------------------------------------------------

Anand, how is the inventory position post the festival season? Has it come back to normal level? Or still we are carrying high inventory post festival? And some color on the...

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [33]

--------------------------------------------------------------------------------

We are -- I mean we are very comfortable on the inventory piece because we had anticipated this inventory because we opened 15 new stores in October and we were focusing highly on the Diwali, Durga Puja sales and then also in the winter merchandise inventory as we normally do. That is why the 30th September inventory looks optically a little higher. But during the October month also, we had a high sales target and then continue doing that in the third quarter. So by the end of the third quarter, we should be around the similar number or better in the days of inventory as far as inventory days is concerned.

--------------------------------------------------------------------------------

Jignesh Kamani;Goldfish Capital;Research Analyst, [34]

--------------------------------------------------------------------------------

While store-wise in October end...

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

Sorry to interrupt, Mr. Kamani, sir, may we just request that you reduce...

--------------------------------------------------------------------------------

Jignesh Kamani;Goldfish Capital;Research Analyst, [36]

--------------------------------------------------------------------------------

To the same question only. So October end post festival, was store inventory has come down to normal level?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [37]

--------------------------------------------------------------------------------

I may not be able to reply that, Jignesh, right now. But yes, you can come down or we can take that separately. I think it is under control.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

[Operator Instructions The next question is from the line of Avi Mehta from IIFL. ... Your line is muted please go ahead?

As there is no response from the current participant, we move on to the next that is from the line of Shirish Pardeshi from Centrum Broking.

--------------------------------------------------------------------------------

Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [39]

--------------------------------------------------------------------------------

Just 2 questions. First, I've seen that shrinkage has gone up. Is there any specific reason particularly this season the shrinkages are higher?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [40]

--------------------------------------------------------------------------------

No, absolutely not. There's just business as usual. So we've provided for, as part of our long-standing policy on provision of old inventory, it's just a normal provision. Normally, in -- during the quarter 2, we do a lot of USS and liquidation. So therefore, this quarter, we did slightly less liquidation excise. So therefore, we created a higher amount of provision, which is reflecting in shrinkage. Otherwise, it would have come as part of margin.

--------------------------------------------------------------------------------

Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [41]

--------------------------------------------------------------------------------

Okay. I see the Kirana sales is going up. Maybe could you elaborate what is the discounting, which has gone up? Or is the demand, which has gone up? Or consciously we are trying to drive more of Kirana sales?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [42]

--------------------------------------------------------------------------------

There are 2 parts. One is that as we get into festive period, so there is always higher demand for FMCG goods. Festivities are around buying more sweets and chocolates and gifting items, et cetera. Second is compared to last year, we've been talking about we have been implementing impulse sales items around all our billing counters in all the fashion stores as well. As that ramps up, that comparable numbers looks slightly bigger. But at an overall strategy layer, I think the bigger point that I would want to make is that we remain consistent with our approach of being apparel-centric and fashion-centric retailer. So Kirana or FMCG play will still be limited.

--------------------------------------------------------------------------------

Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [43]

--------------------------------------------------------------------------------

Just last question on the store expansion guidance in the second half and FY '21.

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [44]

--------------------------------------------------------------------------------

So full year this year, I think we should be looking at opening 60-plus stores. We are well on track. I think we've already opened around 42 so far. And I think that numbers look very well within reach. If we have much more capacity available, we might even look at expanding that further.

--------------------------------------------------------------------------------

Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [45]

--------------------------------------------------------------------------------

And '21?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [46]

--------------------------------------------------------------------------------

'21, I think we still remain at around 25% addition to our days, which we've been doing for the last couple of years. So we should remain in the same range of 25% addition over the existing base.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

The next question is from the line of Chirag Lodaya from Valuequest Investment Advisors.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [48]

--------------------------------------------------------------------------------

Sir, my first question is on overall expansion. So this year, you have again lowered your SSG guidance and we are seeing some pressure on margins. Still, we are not calibrating on expansion front. So just wanted your thoughts on the same.

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [49]

--------------------------------------------------------------------------------

The expansion is in line with our strategy of overall, as I just mentioned, that we've been growing at 25% for the last -- at least 2 years. And that's the same rate at which we want to continue building. And the expansion is -- at our end is always driven by 3 factors. One is that it has to be a cluster-based expansion. So we don't really get into absolutely new territories. We like to get into territories, which are nearby or adjoining our stores wherever we are. Second is that we remain a diverse and we would want to expand only till the point that we are able to manage with cash internally. And third is all expansion has to be profitable. It has to add to the profitability and the bottom line and not be a drain or a stress. So if 3 parameters -- all these 3 parameters are met, we will still continue to expand in a range, but that does not mean that we are going out of range. We are going very aggressive. We are not adding 200 stores in a year, we are not doubling. We will expand in a conservative manner.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [50]

--------------------------------------------------------------------------------

On CapEx, sir, what is the CapEx for full year?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [51]

--------------------------------------------------------------------------------

I think on a full year basis, we should be spending almost like INR 100 crores or so which is the total cash outlay. If you look at the new stores plus the inventory, that gets added for the new stores, plus some additions in the warehouse and also some technology improvements.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [52]

--------------------------------------------------------------------------------

So after this CapEx of INR 100 crores, on a yearly basis, we'll be still net cash positive, that is under R&D?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [53]

--------------------------------------------------------------------------------

Yes, we still should be targeting cash positive, yes.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [54]

--------------------------------------------------------------------------------

And just lastly, what is the reason for sharp increase in other expense. Despite A&P if I adjust that also there is a sharp increase in other expense on a full year -- half yearly basis?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [55]

--------------------------------------------------------------------------------

So A&P, advertising has gone up by 80%, as I just explained, and there's a 30%, 31%, 35% increase in the manpower cost. And because you're preparing for the festive season, there's a high amount of logistics and the other related costs, which are related to the merchandise upkeep shifting, et cetera, procurement. And that's a buildup for the next festive period coming in.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [56]

--------------------------------------------------------------------------------

And just wanted to know is it due to your investments in omni channel, which is dragging your P&L at this point of time?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [57]

--------------------------------------------------------------------------------

So not largely. So while omni remains an investment area, but it's not a significant investment that will impact the numbers at such scale.

--------------------------------------------------------------------------------

Chirag Lodaya, Valuequest Investment Advisors Private Limited - Equity Analyst [58]

--------------------------------------------------------------------------------

So on a full year basis, still 8.5%, 9% kind of margin is achievable for the company?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [59]

--------------------------------------------------------------------------------

I think there -- it may not be 9%. But we will still try to target somewhere around 8% or so.

--------------------------------------------------------------------------------

Operator [60]

--------------------------------------------------------------------------------

The next question is from the line of Manoj Bahety from Carnelian Capital.

--------------------------------------------------------------------------------

Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [61]

--------------------------------------------------------------------------------

My question is, maybe like what kind of same-store sales growth you target, which can take store level inflation? I mean considering the same-store sales growth, which we have achieved this year, I think inflation may be higher than that at a store level?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [62]

--------------------------------------------------------------------------------

So roughly 3% to 4% SSG is able to offset all kind of inflationary pressures. And that is what I think we are still hovering at around -- roughly around 3% if you look at the YTD numbers. And we still remain optimistic on how the Q3, especially the winter period and the marriage season goes. So to answer your question, 3% to 4% is something that offsets the inflation.

--------------------------------------------------------------------------------

Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [63]

--------------------------------------------------------------------------------

This 3% to 4% is overall or only volume growth?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [64]

--------------------------------------------------------------------------------

Overall value.

--------------------------------------------------------------------------------

Manoj Bahety, Carnelian Asset Management LLP - Co-Founder [65]

--------------------------------------------------------------------------------

Overall volume growth. So if same-store sales growth is higher than 3% to 4%, then it will be margin accretive at the store level, right?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [66]

--------------------------------------------------------------------------------

To a certain extent, yes. While we really do not believe in getting a lot of operating leverage because we would want to reinvest some part of that back into the operations so that we are able to create a much more sustainable and growing format, but yes, there will be some amount of leverage available.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

The next question is from the line of Aayushi Mohta from CD Equisearch.

--------------------------------------------------------------------------------

Aayushi Mohta, CD Equisearch Private Limited, Research Division - Analyst [68]

--------------------------------------------------------------------------------

Sir, I just wanted to understand what has been the impact of consumer spending stress in your business?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [69]

--------------------------------------------------------------------------------

The impact has been basically been more around how the footfalls have happened and how the conversions have happened. So while at a sentiment level, I think, in the markets where we operate in all the Tier 2, Tier 3 cities, which are largely agri-driven markets, there is not much of a ground-level change that we've seen. Customers are still coming to shop. Customers are still coming in higher numbers. So if you look at the footfall growth, it's grown by 9% and the conversion has also grown up by 0.5%. So that's a healthy sign. But I think more importantly, the trend that we're seeing is that the customer is getting slightly more choosy in what he really wants and what he demands. So he's seeking much better fashion even if it comes at a higher price point. And at least whatever numbers if you've seen during the festive period, there is much higher demand for better fashion.

--------------------------------------------------------------------------------

Aayushi Mohta, CD Equisearch Private Limited, Research Division - Analyst [70]

--------------------------------------------------------------------------------

But still, your average selling price has increased to like around 16%. So if there's so much stress in the market, so like how would the consumer spend so much?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [71]

--------------------------------------------------------------------------------

So that's exactly what I'm trying to say that we're not seeing so much of a stress as has been made out in the sentiments. So while in the manufacturing sector, in the automotive sector, yes, there is a lot more stress, but at least in the rural sectors, in the semi-urban markets where we operate, we're not seeing so much of a stress on the ground. It's more a sentiment-driven stress.

--------------------------------------------------------------------------------

Operator [72]

--------------------------------------------------------------------------------

The next question is from the line of Aliasgar Shakir from Motilal Oswal Securities.

--------------------------------------------------------------------------------

Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [73]

--------------------------------------------------------------------------------

Sir, my first question is just on your growth point of view. I mean your footfalls have been growing. But if I look at it from a per store or a per square foot basis, I see nearly about a 14%, 15% decline in your footfalls per store. Of course, that's got compensated by your increase in average selling price or even your transactions. But just, I mean, I want to understand more, you discussed about the slowdown point of view. I mean how much would you really attribute this to slowdown? Or maybe the e-commerce guys were very aggressive this quarter. Was that a reason or probably -- I mean you did take a price increase or maybe curtailed your USS. Because the volatility in the numbers on a per store basis is so high or is it because of the new stores that you opened, which have been sort of seeing some kind of lackluster growth? If you can just throw some color on this?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [74]

--------------------------------------------------------------------------------

Ali, a very good question. And there are 2, 3 parts to this. So definitely there is some stress in the market whether it is sentiment-driven or there is actual degrowth happening in the rural markets. But whatever it is, there is definitely some stress in the markets and that is reflected in the overall performance of a lot of cities and towns. But having said that, I think the degrowth on per square foot basis is around 4%, while the volume degrowth is around 8%. So a mix of that is actually reflecting in the number that you just stated. But the per square foot degrowth is largely being driven from the new store addition, while the stores have been added. If you look at on a year-on-year basis, they're almost like 49 stores, which have been added. So while especially in the last 1 or 2 months, September or August, while these stores have added in the square foot base, but their full potential has not really come in, in the numbers. So that is one impact. And the other part is, definitely there is some stress.

Lalit, you just want to add something?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [75]

--------------------------------------------------------------------------------

Yes, I think I agree with your question. There has been some pressure from the economic slowdown as well as maybe knowingly or unknowingly there is something that some consumption should be getting shifted to the online phase also. We don't know. We can't enumerate that. But yes, we have seen a lower volume sales, which might be the outcome of the 2. And there is some pressure, we can't deny that and we should not deny that.

--------------------------------------------------------------------------------

Aliasgar Shakir, Motilal Oswal Securities Limited, Research Division - Research Analyst [76]

--------------------------------------------------------------------------------

So a quick follow-up on that is given that we've taken a price or rather (inaudible) some price increases, do you see that we may have to sort of become little more aggressive? Or how is the festive season going on? And are you already making some amendments over there in terms of your pricing aggression to sort of accelerate growth?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [77]

--------------------------------------------------------------------------------

So I think we are not actually doing a lot of pricing aggression. What we are doing is the customers' requirements or what Anand was speaking that the people are demanding more better fashion and better products, so that is what we have been largely hearing from the stores' front whenever you used to visit the store and you talk to the consumers. So customers, because of the digital influence, as I call that, digitally-influenced customer is much more aware about fashion, is much more aware about trend and is much more aware about what he wants to wear. So that piece is coming in, and people are demanding better products. So that is what we are witnessing. That is how we are putting in those inventory a little more and getting those responses. So I think as soon as this whole hue and cry about slowdown gets over, that should really result into a better same-store sales growth immediately after this hue and cry goes over.

--------------------------------------------------------------------------------

Operator [78]

--------------------------------------------------------------------------------

The next question is from the line of Ankit Kedia from PhillipCapital.

--------------------------------------------------------------------------------

Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [79]

--------------------------------------------------------------------------------

Sir, you mentioned that the UP same-store sales growth was 4%. Can you share the number for Bihar as well?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [80]

--------------------------------------------------------------------------------

Bihar was around -- Bihar was roughly around 5%, while Jharkhand at a small dip because -- sorry, Bihar was negative, Jharkhand was 5%. Bihar was negative largely because just around 20th of September or so for the last 1 week, it witnessed very huge amount of rainfalls. So the festive season there, pre-festive season got washed away.

--------------------------------------------------------------------------------

Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [81]

--------------------------------------------------------------------------------

And sir, you also mentioned that some Northern states of Punjab, Himachal, Uttaranchal were pain points. So is it only for the quarter or are we seeing something structural because these are not core markets? So from an expansion point of view, if these continue to be pain points, we will focus on UP, Bihar and East India and not so much on the north side of India?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [82]

--------------------------------------------------------------------------------

It's not really a structural problem. So if you just dissect the entire north, so there is one part which is Jammu region, which is definitely impacted because of the political disturbance there. But other parts of North India are usually winter markets and as the winter season progresses, you will see growth coming back there.

--------------------------------------------------------------------------------

Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [83]

--------------------------------------------------------------------------------

Sure. And sir, on your lower discounts in end of season sale, what was the response of competition to that? Did we see even competition lower discounts or we stood out for giving lower discounts, and hence, footfalls happened in competing stores?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [84]

--------------------------------------------------------------------------------

I think we stood out, and we changed it consciously as a strategy. We sort of disrupted the market. And in spite of that, we saw not a huge dip in the footfalls during August.

--------------------------------------------------------------------------------

Operator [85]

--------------------------------------------------------------------------------

The next question is from the line of Kunal Shah from IIFL.

--------------------------------------------------------------------------------

Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [86]

--------------------------------------------------------------------------------

Sir, this is Avi here. I'm sorry in the earlier time I couldn't speak for some reasons. Sir, just one thing that I could detect is a clear focus on store additions that you are spelling out, notwithstanding the near-term concerns on demand that have kind of -- I mean in that context and the context that you highlighted that some players have smaller scale, but they can't grow bigger, would we explore inorganic spend to kind of boost scale with most step jumps rather than the steady state that we are at? Just trying to understand your thought over there, sir.

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [87]

--------------------------------------------------------------------------------

Avi, I'll try to take this question. I think we have always been witnessing these retailers growing and we know these retailers are growing. So V-Mart is not in a drive to acquire properties and just add on to properties. So we don't -- we know this is...

--------------------------------------------------------------------------------

Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [88]

--------------------------------------------------------------------------------

No, no, I don't mean it that way. I mean that you have found the right -- I mean, if I may say, you found that secret sauce and it's working very well for us. It's just there are players who don't have it and you can definitely kind of up the growth rate. I don't know. I was just trying to understand because finally...

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [89]

--------------------------------------------------------------------------------

I know, I know. I understand where you're coming from and this is the area we always look forward. We always understand all the competition, both from the competitive perspective and also from the M&A perspective. If at all there is any possibilities, we want to look at them. But we really haven't found any of those retailers to that level of standards where we operate in those governments and those capability standards. So we just don't want to acquire properties, we want to acquire businesses if at all, or if it adds some value to the business. So as of now, we don't see any retailers working in that space. We really don't feel that we can do that. But still -- we will still keep our eyes wide open and look at everyone in a similar way.

--------------------------------------------------------------------------------

Avi Mehta, IIFL Research - Assistant VP & Lead Analyst of Consumer Discretionary [90]

--------------------------------------------------------------------------------

Perfect, sir. That helps. The second question, sir, I have is what we did this quarter. Just the bit was on the discounting that you've done this quarter much. The change in strategy on discounting. I mean is this, in a way, suggesting that our brand value is actually much more in terms of we can command a better pricing? Did you take that away as well from this quarter? I actually was looking at this positively rather than negatively that you have been able to -- you have taken a feedback from a customer that a customer actually believe V-Mart is much more than just people demand...

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [91]

--------------------------------------------------------------------------------

You're absolutely right, Avi. You're absolutely right. This is what our focus and our intentions are. We are trying to develop this brand proposition wherein we want the customers to take us differently on value fashion, not only value basics. So we just want to be the one of the player of hypermarket where they are providing the core products, not quite fancy products. So we are one of the retailer who wants to stand out as a trendier fashion product, which has provided the value. So we just don't want to get into that rat race of price where the online players and even the regional players will get into. We want to really stand out on product, what product do you want to buy and when do you want to buy what. So I think that is the large proposition we're trying to drive, where we've got a very, very positive response and we'll continue to do that.

--------------------------------------------------------------------------------

Operator [92]

--------------------------------------------------------------------------------

The next question is from the line of Pulkit Singhal from Motilal Oswal.

--------------------------------------------------------------------------------

Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [93]

--------------------------------------------------------------------------------

This is from the asset management team. Sir, just a quick question on, just trying to understand the strategy on discounting. I mean clearly, over the last 2, 3 years, competition has come up in a big way and now you also have national players. And we are in the macro environment of slightly slow growth. So your focus on lower discounting or margins? Don't you think this would result in your customer segment, which is -- tends to be a lot more deal focused to move to other players? And may not -- I mean may kind of backfire?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [94]

--------------------------------------------------------------------------------

Yes. Pulkit, once again, reiterating we are not a short-term player, we are a long-term player. We just don't want to cash out on the opportunity right now in the market. We will want to develop a brand philosophy or a brand [feeling], which will upgrade the mind perception of the customer on fashion. So we want to retain our position there and we want to do that, and that is the best thing which the company is doing, and that is the strength of the company and that is what the customer also wants to reward us. So we will want to remain there. We don't want to get into the small, small problem that we lock at in the market and they will be players who will have more cash to try and give more discounts. They will be customers who don't have cash flow management issues, who wants to drive some more small temporary sales. So we don't want to deviate from our strategy. We will keep continuing on our strategy even if we suffer some temporary loss.

--------------------------------------------------------------------------------

Pulkit Singhal, Motilal Oswal Asset Management Company Limited - Associate VP & Analyst [95]

--------------------------------------------------------------------------------

Sure. And what does this translate to in terms of gross margins? I mean is there some level that you said, okay, below this, we will not go in terms of discounting? Because I think the first half has been roughly around 31% odd. So is that what you actually said, "Okay, we don't want to go below this and we'll just..."

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [96]

--------------------------------------------------------------------------------

I think on a quarter-on-quarter basis, you will see some differential number on growth side. But we don't want to say that we'll carry old inventory. We'll always try to discontinue or liquidate the older inventory as aging goes on. But still, we don't want to aggressively do discounting. So we will stand out as clear as that. We will want to reward the loyal customers. We will want to reward those customers who remain with us. But yes, this is what we would want to do.

--------------------------------------------------------------------------------

Operator [97]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Lokesh Manik;Vallum Capital Advisors;Research Associate, [98]

--------------------------------------------------------------------------------

Reference a couple of clarifications. One is on the Ind AS impact. We wanted to understand that the second point that you have mentioned in your last slide where it's mentioned that interest is added and payments are reduced from lease liability for the future period. I just needed clarification. These payments are the actual rent expense?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [99]

--------------------------------------------------------------------------------

Yes. Payments are actually the rent expense. And so -- as I mentioned earlier, there are 2 parts to the entire Ind AS impact. One of these rentals getting reclassified into depreciation and interest cost. And the second part is the addition -- additional interest cost on the notional liability that we've created on the books. So that amounts to around INR 7 crores, INR 8 crores for the quarter and INR 15 crores for the half year period.

--------------------------------------------------------------------------------

Lokesh Manik;Vallum Capital Advisors;Research Associate, [100]

--------------------------------------------------------------------------------

And the second clarification was that our EBITDA for this quarter would be a loss of INR 5 crores, if I'm not mistaken. Am I correct on that, after Ind AS impact?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [101]

--------------------------------------------------------------------------------

Excluding Ind AS impact, the EBITDA loss for the quarter would be INR 8 crores.

--------------------------------------------------------------------------------

Lokesh Manik;Vallum Capital Advisors;Research Associate, [102]

--------------------------------------------------------------------------------

INR 8 crores. And I mean if I can understand where the balance INR 3 crores would be coming from because the first half is EBITDA reported as 72%, which if I adjust for the increase of EBITDA due to rent expense is 38%, so net would be 34%. Last quarter EBITDA is 39%, difference is INR 5 crores. So the INR 3 crores would be arising from...

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [103]

--------------------------------------------------------------------------------

No, I am not able to follow that INR 3 crores. So looking at INR 11 crores positive versus INR 8 crores negative, so the difference is actually 19 crores.

--------------------------------------------------------------------------------

Lokesh Manik;Vallum Capital Advisors;Research Associate, [104]

--------------------------------------------------------------------------------

The difference is INR 19 crores.

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [105]

--------------------------------------------------------------------------------

For the quarter, the adjustment in EBITDA is INR 19 crores, which is entirely due to rent. And pre-Ind AS, the EBITDA would be minus INR 8 crores. Post-Ind AS, the EBITDA looks at positive INR 11 crores.

--------------------------------------------------------------------------------

Lokesh Manik;Vallum Capital Advisors;Research Associate, [106]

--------------------------------------------------------------------------------

Pre Ind AS, it's minus INR 8 crores?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [107]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [108]

--------------------------------------------------------------------------------

The next question is from the line of Mayank Sangani from ITI Capital.

--------------------------------------------------------------------------------

Mayank Sangani;ITI Capital;AVP - Investment Banking, [109]

--------------------------------------------------------------------------------

What I wanted to understand is how is the competitive intensity. And have the other guys benefited from higher USS for this quarter?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [110]

--------------------------------------------------------------------------------

I think that we've mentioned that we've not done higher USS, be it in part ...

--------------------------------------------------------------------------------

Mayank Sangani;ITI Capital;AVP - Investment Banking, [111]

--------------------------------------------------------------------------------

The competitors?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [112]

--------------------------------------------------------------------------------

The competitors did whatever USS stated, but I'm not too sure of how -- about how their performance was. We were fairly okay during the USS period despite not giving out much higher discounts.

--------------------------------------------------------------------------------

Operator [113]

--------------------------------------------------------------------------------

The next question is from the line of Anuj Sehgal from Manas Fund.

--------------------------------------------------------------------------------

Anuj Sehgal;Manas Asian Equities Value Fund;Founder & Portfolio Manager, [114]

--------------------------------------------------------------------------------

Lalit-ji, I had a question. In the beginning and during the call also, you mentioned that a lot of your customers are now digitally influenced because of new trends and fashions. But then, the same customer is also digitally more savvy and has a propensity to try online. So one is that. And then the other factor is even in a slowdown period, people are willing to cut their discretionary spend and they're willing to use a cheaper brand of soap, but they don't want to give up their digital access, access to Internet. So have you seen any impact of this in terms of the spending patterns in the area that you operate?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [115]

--------------------------------------------------------------------------------

Yes. Anuj, you are correct. And then there's no doubt that the customer has not reduced their digital spend. And they keep -- they are digitally motivated and influenced, and they will want to buy more fashion. And then they can also approach to the digital players, which are available online and now, which we are also trying to experiment and be there. So yes, but we keep experimenting and we keep checking and we keep auditing the kind of products available digitally and the kind of products available to us. People will experiment, people will want to test the digital platform. But in the kind of quality that we see and the kind of effect we've received, the kind of quality, the similar prices are much, much lower. So we will still want to concentrate on both, the trend, the fashion, the quality and then the prices because how do you keep that trend in the prices or feature in the prices, the quality of the product that the middle is a good level and then lower the prices. So we will continue doing what we are, and there will be upswing and downswing of the customer who will want to buy something digitally, experiment something digitally, people who will buy more product in a year will experiment more. But people who have limited capabilities will only experiment it with the trustworthy player and that is where we stand.

--------------------------------------------------------------------------------

Anuj Sehgal;Manas Asian Equities Value Fund;Founder & Portfolio Manager, [116]

--------------------------------------------------------------------------------

Okay. And then my second question is at the store level, have you seen any increase in employee turnover?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [117]

--------------------------------------------------------------------------------

No, I think it has been almost fairly average. So we've actually bettered there. So we don't see a lot of turnover at the store level.

--------------------------------------------------------------------------------

Operator [118]

--------------------------------------------------------------------------------

The next question is from the line of Sabyasachi Mukerji from Centrum Portfolio Management Services.

--------------------------------------------------------------------------------

Sabyasachi Mukerji;Centrum India;Buy side Analyst, [119]

--------------------------------------------------------------------------------

A couple of questions. First, on the SSG volume, the trend of 8%, probably first negative number in last 14 quarters. Also if I look at the footfall per area -- per square foot actually, the absolute footfall numbers have grown, but then footfall per square foot has come down. Any specific reason, any market you are seeing weakness?

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [120]

--------------------------------------------------------------------------------

Sabyasachi, I don't know this is the first in the last 6, 14, 12 quarters or not, but yes, there is -- we've not seen a lot of growth in volume. Yes, you're absolutely right. And this is what we witness and we understand, but this is there. So there is a pressure, no doubt and you can't deny that there's a pressure of slowdown and there's a pressure, which people want to spend a little consciously. They will only want to spend in products which they really wanted. So that is what is being witnessed and which is very temporary. And footfall per square feet, and yes, you will get that because if you divide it by the number because we have opened almost, as Anand was mentioning, 51 stores in the 12-month period, which has not completed the complete 12 months of its operations. So there will be lesser amount of days -- operational days for the store. And this is how you will not get so much of a footfall. And more the store becomes older, people who only understand, believe in V-Mart or its pure buyers, comes up to us.

--------------------------------------------------------------------------------

Sabyasachi Mukerji;Centrum India;Buy side Analyst, [121]

--------------------------------------------------------------------------------

Can you quantify the negative L-to-L growth in Bihar?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [122]

--------------------------------------------------------------------------------

I mentioned it earlier, but I think it was in low single digits.

--------------------------------------------------------------------------------

Sabyasachi Mukerji;Centrum India;Buy side Analyst, [123]

--------------------------------------------------------------------------------

Low single digits. Okay. Okay. A second question on the operating margin. In first quarter call, you mentioned that you would be targeting 9%. Now when you say that probably 8% is achievable. Any further downside you see, I mean, 8%, can we achieve that or will it slide down further?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [124]

--------------------------------------------------------------------------------

I think these are just targets and plans. So unless we really have something on the ground, I really don't want to comment any further on that. It's just a target, I think a number that we would still want to achieve.

--------------------------------------------------------------------------------

Operator [125]

--------------------------------------------------------------------------------

The next question is from the line of Kunal Bhatia from Dalal & Broacha Stock Broking.

--------------------------------------------------------------------------------

Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [126]

--------------------------------------------------------------------------------

Sir, I just had a question in terms of your -- you mentioned that your new-store openings would be from your internal cash flows. So just wanted to understand how are the sales panning up post the festive season? Because you are witnessing such a good growth on a month-on-month basis that the coming Q3 and Q4 would be enough for getting down our debt as well as improving the working capital situation and getting back to the previous cash flows? Secondly, just wanted to -- just had a clarification in terms of the right-to-use of asset and the corresponding liability. In terms of projection, how do we assume that?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [127]

--------------------------------------------------------------------------------

So the festive season, I think Lalit has addressed that question a bit back -- a couple of minutes back. Festive period has been fairly been okay, not too great, but not too bad either. Bigger point is that quarter 3 always is the biggest quarter for the year led by festive, marriages and the winter inventory, which is much higher in value. So therefore, the debt or the working capital limits that we have usually every year are stretched around this time, this quarter end, quarter 2 and beginning of quarter 3. So we're fairly confident that as the inventory levels get under control, that working capital lines and the debt level will get back to normal, which is fairly normal for every year. The second part of your question was around the right-of-use asset and how does that pan out for the future. So if we are looking at 25% addition to the retail area every year, which means that even if our -- the rental costs remain in line with our past actual numbers, so we should look at a 25% increase in the RoU number year-on-year.

--------------------------------------------------------------------------------

Operator [128]

--------------------------------------------------------------------------------

The next question is from the line of Saurabh Ginodia from Stewart & Mackertich.

--------------------------------------------------------------------------------

Saurabh Ginodia, Stewart & Mackertich Wealth Management Ltd., Research Division - Associate VP of Research and Strategy [129]

--------------------------------------------------------------------------------

Sir, last quarter, you indicated that you're working on vendor consolidation program, which will help in control of your sourcing costs. So what is the progress there and what kind of a gross margin improvement can we predict from that side?

--------------------------------------------------------------------------------

Anand Agarwal, V-Mart Retail Limited - CFO [130]

--------------------------------------------------------------------------------

So there's been a lot of work, which is happening on the sourcing side and we've been working on this program for close to 1 year now and there are some very good results. So the margin expansions that you've also seen in this quarter while some of that has come from lower discounting, the other part is also coming from the vendor consolidation and the improvements in the product mix that we are now able to get because we're trying to get closer to the customer in terms of understanding what really he is wanting. Also to share on the similar lines that we've also been expanding our private label share, which has almost touched 70% and that would also not have been possible without the vendor consolidation. So on all the 3 fronts, I think the progress is quite visible. And while we will not really want to expand the margins abnormally, but the current margin levels should remain in the same range -- or the future margins should remain in the same range.

--------------------------------------------------------------------------------

Operator [131]

--------------------------------------------------------------------------------

Ladies and gentlemen, that is the last question. I now hand the conference over to Ms. Parin Tanna for her closing comments.

--------------------------------------------------------------------------------

Parin Tanna;B&K Securities;Vice President- Research, [132]

--------------------------------------------------------------------------------

We'll get the closing comments from Lalit-ji. He'll give the closing comments, please.

--------------------------------------------------------------------------------

Lalit Madangopal Agarwal, V-Mart Retail Limited - Chairman & MD [133]

--------------------------------------------------------------------------------

Thank you, everyone. Thank you, Parin. Thank you all the patient full analysts and people who were there on that side of the table. We continue to look at the forward long-term strategy, long-term plan. We still believe there's is a huge potential. We want to penetrate more in those cluster-based approach, being more cluster-focused on Tier 2 towns, bigger, larger towns where we have seen a lot of success. We want to bank on those success. We want to penetrate more into states of Madhya Pradesh, Rajasthan, continue doing that, continue to expand in those Tier 2, Tier 3 towns as well. And looking forward for your continued support and looking forward to your continued availability in all the calls. Thank you so much. Thank you.

--------------------------------------------------------------------------------

Operator [134]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, on behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.