V-mart Retail Ltd (VMART) FY FY22 Earnings Concall Transcript

V-mart Retail Ltd (NSE:VMART) FY FY22 Earnings Concall dated Oct. 18, 2022

Corporate Participants:

Anand Agarwal — Chief Financial Officer

Lalit Agarwal — Managing Director

Analysts:

Tejas Shah — Spark Capital — Analyst

Unidentified Participant — — Analyst

Percy Panthaki — IIFL — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Rishabh Dugar — CD Equisearch — Analyst

Aliasgar Shakir — Motilal Oswal — Analyst

Avi Mehta — Macquarie — Analyst

Ankit Kedia — PhillipCapital India Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the conference call on V-Mart acquisition of LimeRoad business, hosted by PhillipCapital India Private Limited. [Operator Instructions]

I now hand the conference over to Mr. Ankit Kedia from PhillipCapital India Private Limited. Thank you, and over to you, sir.

Ankit Kedia — PhillipCapital India Private Limited — Analyst

Thank you, Vivian. Good afternoon, everyone. Welcome to the V-Mart Retail conference call to discuss the acquisition of LimeRoad business. On the call we have with us Mr. Lalit Agarwal, Managing Director; and Anand Agarwal, Chief Financial Officer.

Without any further delay, I would like to hand over the call to Lalit ji to take us through the rationale for the acquisition, and then, we will open the floor for Q&A. Over to you, Lalit ji.

Lalit Agarwal — Managing Director

Good afternoon, and good evening, everyone. Thank you for coming on the call on a simple request.

We just made an announcement yesterday, and we wanted to appraise and apprise of given about the little bit details on the acquisition. We know this is a small-size acquisition, but still more clarity can be offered to them. This call is only for this acquisition and this particular online piece, but other than that, I’ll not be able to answer any kind of current market situation and current market response and performance.

So, we announced this deal and you all know that we had been speaking about it, and lot of the questions in the earlier calls from most of the analysts and investors has been into: what are we doing towards only retail? What are we doing towards online? How is it working? What are you seeing as a threat? So, to try and answer all of this, we are trying to — and we were thinking and we were trying to build on our own model.

And what we are doing for the last three years, we were trying to do lot of activities. We have been — we have launched this portal almost two-and-a-half year vmartretail.com. We built this team. We were focusing on bringing the sales up, but somewhere I realized that something was missing and something very good was not being able to do. We were not able to create the right technology. We were not able to create the right team. We were still not able to acquire those kinds of digital customers, and convert customers who are there on the digital platforms.

So, some of those things we thought and we understood that this is something which needs a little more of digital culture, little more of digital understanding, which is largely with the start-up world in India, and which is there — which people have demonstrated their through understanding of digital commerce. So, that is where we were trying to look for some opportunities outside, and how could we acquire people, how can we look at things, and then, we came across this particular effect, which we thought was a great asset, which we understood it well.

We understood the promoters. We understood the culture. We understood the value system. We understood the numbers. And we saw this marketplace as a real good technology and good team, which understood the consumer, which is fashion-led consumer and which has done over the last one decade, which has really done a remarkable job in terms of their creativity, their content, their engagement activities, their product lines, their communications, their logistic and supply chain work that they’ve done.

So, some of these areas, they’ve really crafted and curated this particular model towards fashion. And, as you all know that V-Mart might has been very, very highly focused on the value fashion where we definitely want to regularly keep providing those trendiest fashion to our consumer base in our markets. And that has been our approach and that is what we have — we are known for and that is what we have been regularly saying.

So, just to add-on to that, we thought this portal, this particular channel, is very interesting, and it will definitely add more fashion quotient in our overall strategy, in our overall look and feel, in our overall customer aspiration. And what we wanted to target is we wanted to target this millennial population, which is a digital-first customer, which is actually growing and which is becoming larger and larger. So, this digital-first customer we all understand that they have their own symptoms, their own syndromes. They want to shop from the particular place, and they want to look different. They want to be seen different in a different zone and a different geography and a different product lines and different brands.

So, that is what we are trying to target through this particular acquisition, that how do we track this particular digital-first customer? These are customers who are still coming to us. There are lot of them who may not be coming to us, who are still not looking at them as our brand — looking us as our brand — their brand. So, how do we bring those customers? And that is what the strength of this particular team is and this particular brand is. They’ve been regularly attracting this particular audience. Within this audience also, they have been attracting the women audience, which is a great — which is the toughest nut to crack. They have — the women audience, the women folks has been the difficult folks in fashion industry.

The fashion quotient changes very fast. The fashion — the speed at which the fashion changes is also very high, whether it is ethnic fashion or it is a western inflation. And somewhere what we understood in this whole process of marketplace in women’s fashion, which I — which we saw women’s — in the women wear segment, if you all remember, every time I keep talking about it, large portion of India wear traditionally wear or ethnic wear. And within traditional and ethnic wear, there is a huge amount of diversity across the states and across the region and geography. That is where you need so many designs and so many styles, and there is a localization need, and there is a local take, which is required. So, here when we look at our V-Mart’s own fundamental processes and fundamental customer segment and our own share of mix, we see this as a big bottleneck, and we somewhere we are not able to cater to that, that is why women wear a percentage of sales mix is very low in our particular performance.

So, we believe and we believe that in women’s wear, we need more minds to create product. We need more vendors who could create multiple designs. We need more curated fashion for those region and for those geographies where those kind of product aren’t there. So that is where in my store — in our store, we got a limitation of space, we’ve got a limitation design, we buyout inventory, there’s high chances of the inventory not getting sold at the right place or not getting dispatched at the right place. So there is — there are the risk on the women’s wear fashion that we anticipated and we saw, and that is why we could not take so many chances and so much of risk to provide product across the stores.

In the marketplace what happens, when you have multiple vendors on-boarded on the portal, there are multiple product lines that you got listed, and these product lines are now available to multiple stores in multiple geographies or multiple geographies to multiple customers. All of these customers can choose their own pattern, their own color chart, their own style, their own vendor base, their one dialect, or their own taste. So that is very important where we could definitely provide diversity in fashion, which is more attuned to the women audience; that is one particular point.

But otherwise, other than that, I believe — we always have believed that, that is why we are not 100% private-label, we always have given a space to our market label also, where we believe product which are good quality, good fashion and good prices are always accepted by customer and we always believe in this theory that good product is important to offer to the customer. That is why with the same approach, we believe even the marketplace where vendor owns the inventory or vendor can unleash those inventory, this can be an additional benefit to both our V-Mart customer, who is present in offline space, who is not there in the offline but there in the home or is not able to come to the store to take the deliveries and take the product, can actually order them online, can use those product lines also as the endless aisle, and all the V-Mart products and all the V-Mart customer can actually go on this LimeRoad portal as a single digital arm for both V-Mart as well as unlimited customers. So that’s the plan that we have that our vmartretail.com will get merged into the limeroad.com, and limeroad.com becomes our digital arm for both the brands that we have for Unlimited in Southern India and V-Mart in the northern and the rest of India.

So, that’s the whole model that we are trying to build. Here, we definitely love the team which is there working, Suchi Mukherjee, who has founded this company. And I’m so impressed by her understanding of consumer, her understanding of market, her understanding of creativity, content, product and the team, and the way she handles. She is a great leader. I really believe that she could really take this journey forward and take this understanding of — her own understanding over consumer in India, and the understanding of digital space, and the understanding of fashion, and work along with V-Mart’s team, so that we could actually synergize and create the real only world — a most powerful omnichannel retailer.

That’s what we want to create ourselves as. And that’s what we are trying to aim at. Definitely the team below her, there is co-founder Ankush, who is also a great resource who understands the supply chain and business very well. And the entire team, there’s a good amount of digital team, tech team, and we definitely have been chasing the technology and the digitalization space. This also gives us a lot of input and lot of benefit on overall improvement on our technology, overall improvement on our digitalization, which gives us more power on our analytics, gives us more power on our digitalizing the entire process as well.

So, those are some of the second phase of work. But the first phase is, how do we convert the — this channel to an omnichannel? How do we bring the customers on the same platform? Definitely, there is a lot of confusion over the brand; V-Mart, Unlimited, and now, a new LimeRoad. But, yes, we don’t want to lose over the asset of LimeRoad brand. LimeRoad has its own big customer-base, almost 17 million customers are registered with LimeRoad. That’s a very important asset in the digital space. We know how much e-commerce companies have spent over the years over the acquisition of a single customer. We hear INR800 to INR1,000 rupees bidding spent on acquisition of one customer. So, 17 million customer is a big number and big asset which we want to really use. And added with that, we’ve got our 30 million customers who are already in V-Mart store and registered with us.

So, I think we can really offer a new perspective to even our customer and LimeRoad customer, plus there is a large opportunity to acquire new customers, because a lot of shift has happened since COVID and post COVID. So, this youth — new generation, new millennials and this Z-generation kids, they all want to shop online and want to have the best fashion. So, I think there is a huge opportunity. We will, as a team, do lot of synergies, because there is a lot of opportunity over kids wear, men’s wear, which they are still not doing good. So, there is a huge opportunity to uplift the kids wear and men’s wear category in the LimeRoad segment, bring about those kind of product online, the INR800 crores, INR900 crores of inventory at V-Mart. All those inventory get listed — live — get live on the LimeRoad portal, that can really uplift the the LimeRoad’s expectation. And there is definitely a great demand that we’ve seen of V-Mart’s product on the marketplaces, because LimeRoad — sorry, Myntra and Amazon and Flipkart, all the three portals have really given us very good response. Myntra, especially, has given us very good response, which shows our acceptability of product in the digital space, in the e-commerce world.

So, this is a great opportunity, which I believe, which we will focus on. The numbers that they have are also better than the market numbers, the benchmark of market which we see and which we have known, those people who have filed their DRHP or people who have come with a public issue, they have their numbers in the market and we compare those numbers, with their numbers. Most of the numbers, most of the — either the marketing return or the logistic cost or the operational cost, so all of those numbers, they call CM1 and CM3. So, all of those numbers are better or similar to the best of the marketplaces.

So, we were very confident on the numbers. The same mindset that V-Mart has over the cost control, over the efficiency generation point-of-view, I think the same value systems exist in the LimeRoad team under Suchi. And the same efficiency is being seen there. We saw some of those very good collaboration point, those common value systems, those common DNA, which actually drives efficient and profitable model. So that’s the opportunity. They were CM3 profitable before COVID. They could be — we will definitely target to become profitable with the synergies that V-Mart can bring in, both in terms of quality products, which where the quality is the important parameter for e-commerce space, most of the customers/consumers who have gone on commerce and purchased for example e-commerce have not shown great confidence over quality, because they are still a marketplace without any control over the quality. At V-Mart, we have a huge control over quality. We could really beat this particular market on the quality parameters, aided by fresh fashion and aided by our private labels, which is our strength and the designer strength that we have. We’ve actually tested this market very nicely.

So, these are the fundamental areas, our investment that we have done. Let me just clarify what the investment if you want. Almost — we have just — what we have done is we have taken over the liabilities of LimeRoad. Whatever today’s liabilities that they had, we did not pay anything on the value part. We took over the liabilities. Almost INR67 crores of liabilities is either paid by us or by them. Those are the two things. Plus, over the next two, three years, we believe we need to invest to upscale the business, to acquire more customers, and to bring the platform to certain level where they could start creating profitability. So, largely we’d target between two to three years for that moment to get achieve. And that — till that time, we will need to invest, and we definitely have to be mindful on how much can we invest.

We would not want to compromise with our organic growth in V-Mart on our opening of stores. And we also not want to take too much of debt. So, we would want to invest something between 15% to 20% of our EBITDA, which is a topper cap, that is upper cap that we will invest in the business to promote digital sales. This is purely because we want to be relevant in 2025. We want to acquire those digital customers. We want to build this omnichannel, which is the future of retail. So, people who are — who look long-term have to pass to definitely act towards long-term. So that’s our understanding.

And you all know that we don’t care too much about our current status, but we do definitely care about our future, and we want to protect and preserve our future. So that’s the overall thesis of our acquisition. Suchi will be acting as the CEO of online and omnichannel business, LimeRoad, for us. Ankush will be the COO. So, we will have the complete team. We will make sure that we don’t lose up to any team. We have given a very incentive ESOP plan — good incentive and ESOP plan to the team, to the senior team. And we will definitely want them to achieve them — that and be happy. So, we will definitely need more guidance from all of you in terms of how do we really make it successful.

We did one acquisition of Unlimited in South India, where we still believe that 70% of the integration thought process that we had, we have done those. Still we don’t believe that we have done better than 100% of what we could have done. There are lot of opportunities and a lot of learning that we will have. We will want to definitely make this integration also successful, because this integration requires different mindset, because the culture at the startup organization is a little different than a culture in 20-year-old company. So, there will be a slight difference. There will be the technology team, the digital team, which have a little differentiated thought process, more younger team, which — and they have differentiate thought process. But we are very open to listen to ideas, implement some of those ideas, and you all have to have the confidence that we will try and learn and do whatever we can.

So, I would rest my talk here. I’d open the house for the questions, and then maybe, I don’t know whether Anand wants to speak, but no, maybe we’ll take the questions and go ahead. So, please open the house for the questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Tejas Shah from Spark Capital. Kindly proceed.

Tejas Shah — Spark Capital — Analyst

Hi, team. Thanks for the opportunity. Lalit ji, first question pertains to some details on the transaction itself. So, who are the existing investors in LimeRoad who are exiting and who will get the proceed that we are paying to?

Lalit Agarwal — Managing Director

So, Tejas, we are not paying any proceeds to the investors. We are 100% we have taken over the liability only, and we are paying for the liabilities. So, no investors will get paid anything from our side.

Tejas Shah — Spark Capital — Analyst

So, the INR67 crore is total liability only, is it?

Lalit Agarwal — Managing Director

Yes. Some part of that has to go to LimeRoad in their account and they will pay, and some part of it will be taken over by us and we will take.

Tejas Shah — Spark Capital — Analyst

Okay. And sir, usually, in online business — so we are also learning as we — as more online businesses are coming our way, but just wanted to understand in online business, liabilities are produced [Phonetic] on which account? Because this was a marketplace model, right?

Lalit Agarwal — Managing Director

Yes, liabilities are on account of the sellers, liabilities are on account of the infrastructure cost and on the employee cost and maybe some other structured liabilities as well. So, marketing costs — so, most of these liabilities are — because on the P&L, what do they have? They have the logistic or delivery partners. They have the vendors who have supplied the products. They have the cloud and the technology people. And then, the social media marketing, Facebooks and Googles and stuff, and then their employee cost.

Tejas Shah — Spark Capital — Analyst

Okay. And Lalit ji, you also mentioned that this due diligence or this integration will be different than what we have done it in past in terms of Unlimited and before that also smaller integrations perhaps. So, how does this due diligence happens? So, is this a technical core devaluation which has happened? And just wanted to understand LimeRoad better. What is the mix between their engineering team and business team mix in the core team which we have acquired for?

Lalit Agarwal — Managing Director

So, maybe Tejas, we’ll give you more details going-forward, but largely there is a good amount of — good number of almost on the senior side, there’ll be more than 30% or 40% of the people who are on the engineering and technical than the technology side. And then, there is a large amount of big amount of opportunity in itself.

Tejas Shah — Spark Capital — Analyst

Yeah, sure. And sir, last one, I’ll will come back to you after this. Sir, usually, we have seen it in past that in retail space on the — the attempt to actually for online retail — offline retailer is to create an online platform, be it on Above or even in Arvind, it has not met with much success despite putting very, very honest effort and capital also. So, what are we — and I’m sure you would have evaluated all this knowing you, the failure stories also. So, what do you think we can do differently to buck the trend here and then do better than at least what history suggests that the success rate is very low on turning it around?

Lalit Agarwal — Managing Director

Tejas, we are hardcore executors. We don’t understand and we believe every day is important and every day learning is important. Someone might have failed, someone might have not performed well. We might also fail, there’re our chances and that is what we have done. We also launched three years back. We made teams and stuff. I would call — I would not call myself too successful on that front. We also failed. There, even if we do organically we could fail. Even if we do inorganically, we could succeed to much more heights. We may not succeed in completely fit. So, there may be chances. I don’t know. We will try to do lot of things, lot of good things, try to synergize, use individual capabilities, their individual strengths and then collaborate and try and see what we can do, because this is the future. We definitely want to win over this. So that — this is not an option. We have to definitely win over this. So, that’s how I look at it.

Tejas Shah — Spark Capital — Analyst

Thanks, Lalit, for your honest answer. I’ll come back in queue if time permits. Thanks, and all the best to the team.

Operator

Thank you. [Operator Instructions] The next question is from the line of Nihal Jham from [Indecipherable], sorry. Kindly proceed.

Unidentified Participant — — Analyst

Yes. Thank you so much, and good evening to the management. Sir, I just wanted to take three questions. First was that, will LimeRoad continue to be a separate business that you’ll drive or the main purpose of this acquisition is to eventually drive the omni or the ecommerce shape of V-Mart? How should we look at it?

Lalit Agarwal — Managing Director

So, Nihal, this is definitely an omnichannel strategy. We want to create a omnichannel strategy, but still we will have a different unit, because this unit has a different culture, a different mindset, and a little different kind of business. So, we will have a different segment and a different unit within our organization, within our Company. It will be in the same company, but we will always look at it differently, have a different P&L, try to have different KPIs and a different team, but there are lot of collaboration team that will get created, so that individually, they help each other and create that channel. There will be some uniqueness that you will have in LimeRoad, which is subject to marketplace. So, there will be some — those kind of products and those kind of vendors who would only be selling on marketplace and not to a V-Mart stores, but there may be a lot of common products as well. So, but yeah for the financial purposes, we will also try to do segmental reporting or differentiated MIS.

Unidentified Participant — — Analyst

Sir, once you list all the inventories, as you mentioned, of INR800 crores, INR900 crores, what would be the…

Lalit Agarwal — Managing Director

Nihal, you are not clear. Can you just have…

Unidentified Participant — — Analyst

I’m so sorry. I was asking that once you list entire V-Mart inventories, as you said, of INR800 crores, INR900 crores, what would be the ballpark mix of the inventory between V-Mart and non-V-Mart?

Lalit Agarwal — Managing Director

Can you clarify the question?

Unidentified Participant — — Analyst

I was saying that today…

Lalit Agarwal — Managing Director

Maybe, Anand can answer.

Unidentified Participant — — Analyst

LimeRoad has certain number of SKUs that are already listed — yeah…

Anand Agarwal — Chief Financial Officer

Nihal, Anand this side. So, the inventory mix, we are not targeting any specific inventory mix. The only difference is going to be that we will also put in the catalog of V-Mart inventory. There is already a much, much larger catalog of inventory which is on, let’s say, as a marketplace sellers, thousands of vendors have already listed their inventory and that number will keep on growing. But what Lalit had said in the opening remark more importantly was that, even the V-Mart inventory, which is our bought-out inventory, will also be available. As a mix, we are not targeting that there should be 10% or 50% of 25%, I think we will keep on growing the catalog, because in a marketplace and our omnichannel play that we are targeting, the bigger the size of the catalog, bigger the size of the options which are available for the end-customer, that is the true success with which we can drive repeat behavior of customer sales.

Unidentified Participant — — Analyst

Sure. That’s helpful. Just one last question. If we look at the online apparel space, at this point in time, obviously, the GMV is more or less in line with the top two, three players. So, from that perspective, what is the kind of proposition you want to build for LimeRoad that ends up eventually getting users to transact and build the GMV from here on?

Lalit Agarwal — Managing Director

See, there are largely — largely, there is already a set of customers who love LimeRoad. There will be always opportunity for niche fashion segment consumer, because we are working at a mass level, at a massed market [Phonetic] level. There are players who are working in premium level who are working on the premium product lines, which are like around INR1,000 and INR1,000 plus product line. So, our customer segment we have target group that we have targeted at V-Mart, that’s the opportunity for us, and the customer of V-Mart, that’s also the opportunity to us.

So, now this particular customer who is right now shopping at V-Mart, who knows V-Mart, who has the relationship here, there is such customer who also don’t know V-Mart, but are similar kind who stays in certain rural areas or urban areas, but would get aspirational to get into those platform. I think, for them, all of them, creating those kind of trust which comes with along with V-Mart and our product lines and our quality product and then the kind of offerings at the marketing that we could do, we really don’t want to say that we want to fight those biggies of the world, we — there is nothing that we want to fight. We want to create our own niche space and we want to just work on those. We are not in the rat race of that e-commerce market-share.

Unidentified Participant — — Analyst

Sir, I’ll maybe come back in the queue. Thank you so much. Wish you all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Percy Panthaki from IIFL. Kindly proceed.

Percy Panthaki — IIFL — Analyst

Hi, sir. Just wanted to figure out one thing that in FY ’21, of course, there was COVID and definitely there was a decline in sales for many of the players. I can understand that. But FY ’22 also saw a decline, and the business is now much smaller than what it used to be. So, what is the reason for this decline on a already low base? And probably linked to that is the question that you mentioned that you are very impressed with the way the business is being run with the promoter, with the operating metrics, etc., etc. Why is it that such a decent business is being sold at zero equity value? And why are the promoters okay with parting with their hard sort of work, sweat and blood for a zero equity value?

Lalit Agarwal — Managing Director

See, I mean, you have to understand this very nicely, because they had a cash issue and they had a cash crunch from the last two years. And overall this whole startup market and we all understand in the startup market overall cash has got dried. And overall if you look at the e-commerce market, even in the e-commerce market, the way that the last question was also there, there is a kind of monopoly or there is a kind of two or three market players who have taken over majority of the share. So, largely, the investor circle, that startup investor circle, they have lost confidence over an e-commerce model itself, which is — this is all my reading. I don’t know — I mean, this is only a common sensical reading that I’m trying to do. So, they did not get funded.

And because they did not get funded, they were not able to attract and pay their vendors and attract customers. So, their ability to pay vendors on-time, ability to pay on the social media platforms to acquire customers because they have only one channel to acquire customer, they had that drop in their revenue, and that is the reason that the team is so passionate — the team there is so passionate, they wanted to build a business. They saw an opportunity in building the business.

It was not easy for Suchi to convince their investors. It was not easy for Suchi to convince herself also. And I really have pride and I really thank and I have gratitude towards the whole team and even the investors who actually looked forward to save this concept, save this particular team and then give them an opportunity to work forward and build a business in omnichannel. That’s a visionary thought process. It is not a desperate thought process is what I would call upon.

I really want to thank and then appreciate the thoughts of investors and the promoters who actually did this, because they saw a future and the future is very live. The future is not only online, the future is not only offline, it is an omnichannel future, and which they could only fulfill by aligning with us. So that’s the future that they are working towards and they definitely will get rewarded once they are able to achieve those numbers and once we are able to achieve our goals. So, we will definitely together achieve those goals. And the promoters and the team, they will definitely get rewarded with good incentive plans.

Percy Panthaki — IIFL — Analyst

Right sir. Next question is, can you basically tell us out of these investments that you want to make apart from whatever INR67 crores you’re paying, in addition to that there are some investments also. Part of those will be parked in the balance sheet and part of them will come to the P&L. So, what I wanted to understand is at the P&L level, those investments, can you give some kind of guidance as to how much they will suppress the EBITDA or the profit of the Company? That’s sort of one question.

Lalit Agarwal — Managing Director

Percy, primarily if I tell you that there will be 15% to 20% kind of payout from our EBITDA line. So, you could assume if 10% is our EBITDA, than 1.5% will be reduced if we really invested in that particular area. So that kind of investment we need to do from our EBITDA, from our cash flow, so that we build our future

Percy Panthaki — IIFL — Analyst

Okay. And all of that will go into the P&L only is what I’m asking? I got that…

Lalit Agarwal — Managing Director

Primarily yes. There is nothing on the capex side.

Percy Panthaki — IIFL — Analyst

Okay. And finally, what — I understand that you want to do a omni play, etc., the futures is there, all that I understand. But what I just wanted to understand is why do you need your own digital assets for that? Why can’t you use third-party aggregators, Myntra, Nykaa, Amazon too sort of have…

Lalit Agarwal — Managing Director

Percy, we are a retailer. We are not a brand. We are not a product manufacturer. We are a retailer. And my retail shop is important to me. My retail platform is also important to me. It’s all about my brand, my customer and my customer, how can he — I allow him to go to another customer — another platform or another shop. So that’s the whole approach. If I’m a retailer, I need to be like a retailer, whether I’m physical or I’m digital.

Percy Panthaki — IIFL — Analyst

Okay, sir. Okay. I’ll discuss this more offline. Thank you very much.

Lalit Agarwal — Managing Director

Definitely. This is a good debate that we should have.

Operator

Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Kindly proceed.

Shirish Pardeshi — Centrum Broking — Analyst

Hi, good evening, Lalit ji and Anand ji. Thanks for the opportunity, and congratulations. Two things. Just a clarification. On Slide 11, you have mentioned that if the contribution margin for LimeRoad is at 32% and you said it is delivered positive contribution of 9% in FY ’22 after adjusting customer acquisition cost. So, can you little clarify that how we should look at this?

Anand Agarwal — Chief Financial Officer

Yeah. Shirish, so the CM1 in the digital world stands for the gross margin, which is basically arrived after, say, deducting the cost of goods sold and the logistics cost. And 32% is a very good margin. I believe in the marketplace and the e-commerce industry it’s one of the best numbers that we have seen at least from a benchmark perspective. And it has been consistent. It’s not like it’s been only in FY ’22. I think for the last 10 years data that we saw and which has been diligent, it’s been a consistent number in the range of 30% to 34%. And that gives us a lot of comfort that this is something which is very sustainable.

On the CM3, CM3 is calculated in the online world as the contribution margin which is a set up after all the operating cost before just the fixed costs. So, beneath the CM3 is the EBITDA line. So, the fixed costs are something like server cost or administrative overheads or people cost, etc. The CM3 also has been absolutely consistent at a positive level for the last many, many years, and that also gives us the comfort that this business given the right kind of support and financial stability can scale up well. And that is where our comfort also comes in that we are suggesting that we will be able to grow this business sustainably only with minimal amount of cash and investments in the future, which we are capping at 15% to 20% of our go-forward EBITDA line.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. So, you mean to say that if I understand correctly, your advertising and employee cost is such high, that’s why this business was generating negative EBITDA?

Anand Agarwal — Chief Financial Officer

I will not say, it’s also a matter of scale. So, for the last two years definitely — see, there are phases in which the business online businesses have grown-up. So, there is a buildup phase. There is a stable phase. So their best phase was around the years 2019, ’18 and ’19 where they were able to scale up to INR700 crores of GMV and an exit-rate of around INR900 crores of GMV. And at that level also, they were CM3 positive at around 8%, 9%, and just about to get EBITDA positive. So it’s a function of scale versus what is the future outlook.

So, for the last two years, because they were in a cash crunch, their sales level had dropped down. They are also concerns a lot of cash reduced a lot of expenditure. So, it’s not just about — because the sales were low, there is EBITDA loss, but it’s more a function of how well we are able to address the stability issue and that is where we come in and bring in that added capital to make this business grow.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Another clarification on the exchange filing what you did yesterday. You mentioned that you are acquiring assets worth around INR14.61 crores. What are these assets?

Anand Agarwal — Chief Financial Officer

These assets are typically in the form of tax credits in terms of GST, etc., which are currently non-monetizable, because we already have enough of those receivables. So, therefore, from a cash flow perspective, there will be a cash outflow of roughly around INR67 crores, that is the entire liabilities or the purchase consideration that we are taking over.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. And my last question on the fundamental thing. In the past, when we look at the history of LimeRoad, they were trying to build lot many other things and they have not been successful off-late. About four, five years before, they were trying to build in brick-and-mortar business, which they tried to open up offline stores in Surat, Gujarat area. So, do you think you will — I mean this question is directly to Lalit ji, because you said that the existing management will continue to do the business. So, such kind of ambitious adventures we’ll still be trying or we will have the clear understanding that we will drive the omnichannel strategy?

Lalit Agarwal — Managing Director

Shirish, definitely the startup world, the youth world will always want to have multiple experiments and innovations and creativity. And they should be allowed to do and empowered to do some of those, and we will also want to be little adventurous when we think about all of those, but not to that level, because they’re already getting some retail strengths, and definitely they had multiple plants and multiple things that they would have done in the past and there are domestic that people do that. I don’t think those were also mistakes. There were certain plants and the plants was backed up by promises but which didn’t happen.

But I think that the team is great [Phonetic], I’m very confident. They are very matured. And then, they are very, very technically skillful and capable. So, I have — and you understand that now they are not — only going to be alone, we are all there together. We are all there to mentor each other and talk to each other and collaborate and take decisions and take right decisions. So, we are very happy to have this team, and we will definitely want to do and become little more younger at an organization with them.

Shirish Pardeshi — Centrum Broking — Analyst

So, precisely, Mr. Lalit ji, when you gave the interview in the media today, I think you said we want to reach to 250 crores GMV. I think that’s precisely I want to understand, how we are going to walk that journey? Or is it that existing business you are confident enough that with the V-Mart inventory listing on the LimeRoad we will be able to attract more customers and the digital savvy customers will lean on…

Lalit Agarwal — Managing Director

So, this team — Shirish, I’ve seen a good growth there, seen a good business. They know how to do their business. They have the capabilities themselves to also run and take their business to that level once given the support from our side, given those kind of money. And plus, added with the advantage of the 400 stores and aided with such inventory, definitely, there is a potential. And I was talking about potential, I still talk and will tell that there is a potential and that’s the goal that we need to target, we should target. We’ve just signed the agreement. We are yet to sit down with the teams to try and analyze. I’m commenting a little more in advance, but this is definitely doable. And I’m not saying that this is what we are targeting and goal is, but yes this is a potential that we have, and we will definitely look forward, maybe 12 months, maybe 18 months, but yes, that is something which is doable.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. I have a few more questions. I’ll come back maybe…

Lalit Agarwal — Managing Director

Thank you.

Operator

Thank you.

Shirish Pardeshi — Centrum Broking — Analyst

Okay, sir. Thank you.

Operator

[Operator Instructions] The next question is from the line of Rishabh Dugar from CD Equisearch. Kindly proceed.

Rishabh Dugar — CD Equisearch — Analyst

Yeah. So, I want to understand what would be your criteria or checklist for acquisitions in future?

Lalit Agarwal — Managing Director

Rishabh, there is no criteria or — we are not a model built for inorganic, man. We are just looking at these opportunities. Wherever we feel that the building up cost is lower or equal to the buying cost, we would invest. That’s the only criteria that we believe. [Foreign Speech] So, that’s the whole model that we are focusing on.

Rishabh Dugar — CD Equisearch — Analyst

So, I just want to understand the — I mean, in terms of factors, since this acquisition came to me as a surprise, so what would be the factors if you will see, whether it would be brick-and-mortar or online or whether you will focus on a certain kind of geographical presence or targeted customer in these terms if you could answer?

Lalit Agarwal — Managing Director

Rishabh, there is no plan. There is no plan as of now, and we don’t wish to acquire anymore. We are done with our acquisition right now. And we are happy.

Rishabh Dugar — CD Equisearch — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Aliasgar Shakir from Motilal Oswal. Kindly proceed.

Aliasgar Shakir — Motilal Oswal — Analyst

Yes, thanks for the opportunity, sir. My question is on the marketplace versus, I mean, V-Mart products. So, this particular company, LimeRoad, should it be selling exclusive V-Mart products overtime and moving out from the marketplace, or you expect it to continue to also remain a marketplace company?

Lalit Agarwal — Managing Director

No. I mean, Ali, we will want them to continue the way they are. We will want to find an opportunity in this model. As you understand that when we took over Unlimited, there was a business which was a partner brand business, where they took some inventory of partner brands on [Indecipherable], which we continued, which we looked, we reviewed, we made it better, and we continued with that. Today also almost 20%, 22% of the sales comes from in Unlimited from partner brands. And that is the model that we would adopt and we will learn and we’ll adhere, and that’s the new opportunity that we could see, because even now, as I said in the past, that V-Mart’s model is not 100% private-label. V-Mart is not a product company. It is a retailer. And for a retailer, we will accept these kind of fundamentals, and we will want to sell these kind of product as well, and we will continue with the marketplace. You’ll find good opportunities and good new model within this particular model.

Aliasgar Shakir — Motilal Oswal — Analyst

Got it. Your initial remark about having 17 million loyal customers that LimeRoad had, I think that gave us a glimpse that LimeRoad is more focused its own loyal customer base, particularly the women customer base where they have fared pretty well versus us. But I was thinking that a marketplace when you compare their direct competitors, to Myntra and the others, and you mentioned that they are basically the — LimeRoad is more value conscious, whereas the other apparel marketplaces are more premium focused in them. But size is certainly a big factor and there is a lot of very high customer acquisition cost here. They continue to provide very high promotion and therefore, the average pricing of product over there also is very high. Correct me if I’m wrong. In fact, you have a very large portfolio of…

Lalit Agarwal — Managing Director

Ali, let me stop you. Ali, there is something which they have been doing, because they were running a constraint business till now. In the last two years, they had issues with their cash flows and stuff. And this is — there’s a future that we will together build, and that’s the point that I’m trying to talk one. And that’s where we will steer our ways and that’s the original version of LimeRoad, which will — it will become. So that’s the area that I’m trying to focus on. Let’s look at what we could make out from there.

Aliasgar Shakir — Motilal Oswal — Analyst

But don’t you foresee very high…

Operator

Mr. Shakir, I am sorry to interrupt, sir. Request you to kindly get back in the queue for further questions.

Aliasgar Shakir — Motilal Oswal — Analyst

Sure.

Operator

Thank you. The next question is from the line of Avi Mehta from Macquarie. Kindly proceed.

Avi Mehta — Macquarie — Analyst

Hi, sir. Am I audible? Sorry.

Operator

Yes, sir. You are.

Avi Mehta — Macquarie — Analyst

Okay. Sir, just on the acquisition, if I understand you correctly, one of the key resources that you pointed out, which we are taking in, is the employee. And I was not very clear on what steps are we taking to ensure retention of the talent pool. And secondly, the culture might be — and please correct me if I’m wrong, but it seems that the culture would have a very wide variation. So, would love to hear your thoughts on how do you plan to kind of tackle these two specific issues.

Lalit Agarwal — Managing Director

Avi, you said it right, and that’s the biggest area of our focus, and that’s the biggest area of my individual areas where I need to give them the comfort, create that kind of environment. And not only me, but I think Suchi is along with us. She is there. She is there as a leader. She has been running the show, and she will be running this show. So, I think we should not impact and we should not create any disturbance in their culture, in their life, in their way of working, and the way they work. We should definitely learn more from them and try to adopt here. So that’s the approach that we’ve taken.

And on the retention, I think she has created a passionate and committed team. They’re emotionally bonded together as a team, and I can see that as a family. And they are very adhere and glued to all of — each of them. And then, I think, beyond that it’s the opportunity which will make them retained. The opportunity of making such a large online-only platform and where they could actually operate the ways they want to operate. They could actually take-back from certain product lines. They could use warehouses. They could use store. They could use this digital — these customers who are in the offline space. And they could also use the 9,500 V-Mart-ians and V-Mart employees who could really support there efforts.

So, I think there is a lot of opportunity for them, plus there definitely would be incentivized and motivated, so that they are retail and there are — there is a retention plan by which they will be retained.

Avi Mehta — Macquarie — Analyst

So, would you use your own stocks as retention?

Lalit Agarwal — Managing Director

Yes, we are issuing ESOPs to the senior team.

Avi Mehta — Macquarie — Analyst

Okay. And sir, secondly, just follow-up on the clarification. I missed the capex amount. Because, there’ll be some amount required to integrate their underlying databases, customer data, because that obviously is the most important resource as we speak. So, did you shared out any capex number for that, or it’s not material?

Lalit Agarwal — Managing Director

Mostly, it will be OpEx. It will be largely people cost and focus, and not too much of capex. I mean, we are still working on all of those. Avi, you’ll have to give us some time. We just signed agreement yesterday.

Avi Mehta — Macquarie — Analyst

No issue, sir. Thank you. That’s all from my side. Thank you very much, sir.

Lalit Agarwal — Managing Director

Thank you.

Operator

Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I would now like to hand the conference over to the management for closing comments.

Lalit Agarwal — Managing Director

Yes, thank you so much. I know you guys trust us a lot and you guys believe in us, and we’ll definitely be what we are. We are known as a conservative organization. Lalit Agarwal is not used to such kind of large decisions and big decisions, but yes, I definitely want myself to change a little bit, change my own thoughts process, invest in future, think something which is not thought off, and definitely be strategic more and ensure that our future remains visible and future remains much more promising. So that’s what we’re working on. We’ll always need your cooperation and your good wishes.

Thank you so much. Have a good day. Bye.

Operator

[Operator Closing Remarks]