VMART - V-Mart Retail Limited Share Price

Management provided an optimistic outlook for V-Mart Retail Limited, highlighting continued growth prospects primarily driven by trends in Tier 2 and Tier 3 cities. They noted that organized retail in India is gaining traction, with a shift from unorganized to organized formats as consumers become more confident in shopping from established retailers. The youth market is also showing strong signs, with the percentage of customers under 25 rising from approximately 22% to 33%.

Key forward-looking points include:

• The anticipation of continued retail growth, sustaining the previous year's growth rate of around 17% to 20%.
• A planned net retail area expansion of 13% to 14% in the coming year, with a focus on both existing and new markets.
• The opening of 62 new stores in FY '25 with plans for similar expansions, underscoring their cautious yet aggressive strategy in property selection.
• Management remains focused on building a strong infrastructure that integrates technology and automates processes for better efficiency.
• Employment costs are expected to normalize after a significant ESOP expense this year, which accounted for 1% of revenues, with future expenses expected to be around INR 80-100 million annually.
• The gross margin is projected to remain stable, affected by seasonal inventory dynamics, but no further corrections are planned.
• Vendor relationships are strengthening, supported by expanding manufacturing capabilities in India, yet the potential for export demands could restrict local supply.

Overall, management expressed confidence in ongoing market improvements, monsoon positivity, and increased consumer spending driven by better rural income and engagement with younger audiences. They reiterated the importance of strategic decision-making to avoid past mistakes in store openings, with a firm commitment to enhancing consumer experience and operational efficiencies.

Certainly! Here are the major questions and their respective answers discussed in the Q&A section of the earnings transcript from V-Mart Retail Limited's conference call held on May 5, 2025.

Question 1: "Sir, firstly, on LimeRoad. So there was an expectation that this will be EBITDA breakeven at exit of FY '25. But last 3 quarters, the absolute amount of losses here at around INR 6 crores to INR 7 crores has remained steady. So, if you can just update the outlook on this going forward as to when do you expect the LimeRoad level EBITDA level breakeven?"

Anand Agarwal: We do not anticipate LimeRoad to become EBITDA breakeven this financial year. Although we expect losses to continue reducing, we now project them to remain around 50% lower compared to last year. While it won't be profitable in FY '26, improvements will be ongoing.

Question 2: "Now, I mentioned you on employee cost. Now, ESOP of around INR 161 million this year, do you expect this to be a recurring expense going forward?"

Anand Agarwal: A part of this expense is indeed one-time because it relates to previously unvested ESOPs. Looking ahead, we expect recurring expenses of around INR 8 crores to INR 10 crores annually due to continued ESOP growth, but specificity will be challenging to quantify.

Question 3: "Now in your experience, what is the driver here? Is it more like overall, in general, the Tier 2, Tier 3 space, the economy is more buoyant?"

Lalit Agarwal: The growth is driven by a significant shift from unorganized to organized retail in Tier 2 and 3 cities. Consumers prefer the convenience and variety offered by organized formats. The youth's increasing information access enhances this trend. The organized retail percentage has risen from 15% to around 30-35% in some areas.

Question 4: "Given that over the next 2 years, we could add 130, 140 stores, do you think at the back end, at the warehouse now?"

Lalit Agarwal: Yes, we will need incremental investment for warehouse expansion. We built 5 lakh square feet initially, with an additional potential of around 3 lakh square feet. Expect some capex next year for warehouse automation and storage efficiency.

Question 5: "If you could just say, are the Unlimited margins continuing to be high as V-Mart or have they reached the V-Mart levels?"

Anand Agarwal: Unlimited's pre-Ind AS EBITDA margins are improving but remain lower than V-Mart. However, as new stores grow and reduce the impact of older ones with higher costs, we expect their margins to eventually converge with V-Mart's levels.

Question 6: "What would be the store expansion target for the current fiscal year?"

Lalit Agarwal: We aim for a 13%-15% increase in retail space, targeting approximately 65 new store openings. We will penetrate both existing cities and new markets, particularly focusing on southern India while enhancing presence in northern and eastern regions.

Question 7: "Was there an Eid effect in seasonality for the quarter?"

Lalit Agarwal: Correct, we had a unique winter with unusual weather that prompted an early summer collection. Additionally, the timing of the Eid festival contributed positively to our sales, reflected in our gross margins this quarter.

Question 8: "So just wanted to know, are there any specific performance targets linked to ESOP?"

Lalit Agarwal: Our ESOP policy is designed around performance. It includes a target of at least 20% YoY growth to trigger vesting. We see this as essential to link employee rewards to company performance, aligning their interests with ours and encouraging retention.

These summaries provide a concise yet thorough insight into the key discussions from the Q&A session.