V-mart Retail Ltd (VMART) Q4 FY23 Earnings Concall Transcript

V-mart Retail Ltd (NSE: VMART) Q4 FY23 earnings concall dated May. 18, 2023

Corporate Participants:

Jay Gandhi — Moderator

Lalit Agarwal — Managing Director

Anand Agarwal — Chief Financial Officer

Suchi Mukherjee — Chief Executive Officer

Analysts:

Sameer Gupta — India Infoline — Analyst

Shirish Pardeshi — Centrum Broking Limited — Analyst

Amit Khetan — Laburnum Capital — Analyst

Tejas Shah — Spark Capital — Analyst

Rishi Mody — Marcellus Investment Managers — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q4 FY 2023 Earnings Conference Call of V-Mart Retail Limited, hosted by HDFC Securities. [Operator Instructions]

I now hand the conference over to Mr. Jay Gandhi from HDFC Securities. Thank you and over to you.

Jay Gandhi — Moderator

Hi, everyone. On behalf of HDFC Securities, I welcome everyone on the earnings call to discuss the Q4 and FY 2023 annual results of V-Mart Retail. We thank V-Mart’s management for having provided us with the opportunity to host the conference call. On the call we have with us Mr. Lalit Agarwal, Managing Director of V-Mart Retail; Mr. Anand Agarwal, Chief Financial Officer and Ms. Suchi Mukherjee, CEO LimeRoad. With that, I request Mr. Agarwal to provide his opening remarks and proceed with the conference call.

Lalit Agarwal — Managing Director

Hi, good morning, Jay. Good morning, everyone. Thank you. Thank you so much for being on the call. Definitely the business has been quite, quite quite a lot of going in retail, quite a lot of things are going in the industry, quite lot of things are going at V-Mart. So we are quite occupied with lot of good stuff, there is lot of emotions which are getting generated, lot of new news we are going to come in. So overall I think the way Bharat, the way India has been growing is quite remarkable and we are seeing definitely lot of good, good potential view of the consumer market of the consumption in India, definitely the way our country is growing, the way people are projecting about the future potential and looking at the this particular year, I think because of the elections, because of the lot of global turmoil, which is which is what people are talking about. I think India has stood up very well.

So at the hinterland level what we have seen definitely people are coming back to their normal routine, people are back into speaking positive about the businesses, about there’s some other activities, having a little more higher confidence on the kind of job that they can get that people who can who will really work on — who can work on certain particular job are looking at growth because in smaller cities, even in places like Uttar Pradesh, Lucknow and all, we are hearing people are little motivated by the industrial development by the — by the upcoming of certain industries in the state and approach that the state governments are taking and we definitely feel there is lot going on, in lot of those states, lot of linear state and there is a competition.

So this competition definitely brings in more confidence in the people, infra development is also giving lot of confidence with the people. Till now agriculture produce has also been fairly good, people have been able to — the agri income depending people have been fairly okay on their income levels, definitely there are pressures in the economy, which is lower strata of the economy which forms almost 70% of the population, which we have been always speaking.

So this three graph economy, which we have seen in the market is somewhere what I’m seeing is tapering down now both from the steepness and the beginning the degree it used to have on the upper side as well as the lower side. On the lower side — on the upper side, we saw this demand coming up in hotels, in flight tickets and malls and then, so lot of those, those are now honeymoon period I call and with excitement, the revenge shopping, the revenge outing, the revenge tourism, they are all now coming to normalization back to normalization, but we are starting to see that that degree getting taper a little bit.

We are also starting to see that the lower part of the PA which in the lower strata of the economy where we are seeing customer, people, consumers getting demotivated and they were I mean they were decreasing their consumption. So we are seeing those consumption coming back a little bit. So that part is also getting tapered off. And now some normalization, some normalization we have seen and we hope that within the next one or two quarters, we will be able to see positive moves coming in, positive moves coming in from all the segment and that’s how our analysis and our future sales. There are definitely states which are doing very good. There are states which are still reeling under some pressure. I think there is also a transition phase which our country is going through from informal economy to a formal economy and then lot of that we can see in the GST collection pieces as well, it’s not the business growth which is coming in, it is also the formulation of economy which is happening.So with the formulation there is lot of benefit that we have numbers, we have seen on the screen, but there is also a pressure which is getting created in the non-formal or informal economy, which is people who used to who were not used to operate in this registration or taxation environment and then formal led environment, they’re getting somewhere effected by this whole formalization.

They feel them self a little less confident, they are under some kind of pressure and threat on their businesses and their businesses seems to be little down. Even lesser corruption and good framework of or implementation of most of the public distribution system and public distribution of those incentives. I think those are formalization also has helped the economy, helped the consumer whether it is reaching them to the right consumer, but also there were few media curves and there were lot of mutually or which used to work. And then they have somewhere are getting impacted all of those, because of that.

So we have seen some part of pressure, higher part of pressure in Uttar Pradesh, Bihar, Bihar continue having that, even Uttar Pradesh continuing having that because we have seen lot of development coming in Uttar Pradesh. So that’s our territory that we are watching out, that’s something that we are looking at because they are definitely building lot of things for the future. But as of — at the current moment, there is a transition phase which is going on and I think that should take another year or six or eight months, so that we are able to come back on that.

Rest I think most of the territories are behaving well, both towards the Southern India, especially East and Northeast India has been pretty — their come back has been pretty good in this particular quarter. We have seen very good growth coming in even now I mean from those particular areas and convention coming back from the area. Their confident also — people in Northeast because lot of activities and interactivities the government has started has been very, very good.

So I think overall, we are seeing good and even the industry has been quite stable now. There is definitely more intense number of concepts which are coming into this market in the retail and the value retail concept. So lot of activity happening here, lot of people opening up new stores, especially those conglomerates which we know. And they are targeting this market. There’s definitely more supply in this market, in this value retail space in Tier 2, Tier 3 towns compared to the earlier days and pre-COVID days, there is definitely lot of mapping that we did, over competition, understanding this competition.

So we saw a lot of new stores getting built up in the last three years and are almost 50% to 60% additional number of stores got built by us, as well as by the competitors. So I think there is definitely more supply. The demand definitely did not grow as per expectation. There is lot of potentiality in India, in Bharat. We all believe in and we all talk about it, but in the last two years, two and half years if we see, there is lot, lot many things happening with those consumers, so the demand has not picked up, it has remained muted or little low. So that is where the supply, additional supply which is getting resumed is not getting matched with the demand, which is there.

So I think there’s definitely right now a little higher supply, there is also economic pressure on the lower straight of the population. So we see some, some relief coming every week, every month and I think that’s the positive news. And balance I think at V-Mart we continuously believe in the long-term story, we definitely believe what is — what we are there for, what is our strength, where should we be focusing on and we believe that the game that we used to play three years, four years back is no more the game, it is definitely little more tighter, it is little more competitive and we need to be, we need to be potentially capable or much more capable to meet the future need of the customer, future need of the market.

So that is how we have prepared our self, we are definitely preparing our self, strengthening the work with our consultant currently for the last 18 months, clearly focusing on really creating a capable and a scalable model on our procurement, on our planning, on our forecasting, on our digitalization of those inventory management. So I think lot of those work in understanding the consumer, having the consumer [Technical Issues] understanding the competition and then developing and creating certain internal capabilities in our organization with respect to the fabric nomination, fabric sourcing, technical understanding, quality betterment.

So we used to — we used to always believe in all of this. We have always done those, but the kind of model that we are preparing, this is something that is more scalable and that’s what we are focusing on. So there is lot of transition and there’s lot of process transition also going on in the company, those are all for good. But I’d be very hopeful that we will be able to I mean better our offering, better our proposition to the customer both from the product perspective, as well as experience perspective.

So, there are lot of work that were internally generated, there’s still lot of project which are internally going on. We are working on more than 50 projects in the company. We are very confident on certain areas, the team — some part of the team members are also changed and new team member are also bringing in some benefit into the system.

So I think lot of these things we will definitely continue. We believe in the long-term story. Currently, we believe that there are lot of towns and cities, where still the kind of stores that we open is required. There is a differentiation that we have with respect to the market, with respect to what the customer needs. There is more differentiation we are trying to create unique differentiation we are trying to create over fashion, over styling, over quality, so that we stand out in the market.

There is definitely lot of room for everyone to do business. There are player supply happening from organized, they come out of retailer, as well as digital retailers and we have heard about the upside the sales of Meesho or even Flipkart or Myntra. So I think there is definitely lot happening in that market, lot of market share also has been taken by both the players and I think it is just the economy which it moves up, we are all, we are all set and we are all there.

And largely, internally, digitally also I think we have been focusing very, very high, both in the front-end side of the digital the customer offerings, how do we motivate the customer to really have the convenient shopping experience both at the online as well as the shop offline. And I think we have internally also brought in lot of digitalization in terms of creating better processes, in terms of creating better perfection or better forecasting because ultimately this business is more also about forecasting, understanding the right assortment, understanding the right fashion, getting into the right timing, with the right quantum and right mindset.

So I think lot of those works we are doing, which is definitely benefiting the company. We continue with a great — as a great employer. We definitely want to attract the best of the talent retail, best of the talent. These are tough times for the industry and for the market and we believe these are great employer, definitely helps employees also be motivated in the system. So we continue doing lot of activities on those lines, our integration with both Unlimited has been very good. Our integration with a LimeRoad as well has been, has been very, very supportive, very, very good. This is definitely a lot of change that we have seen, cultural change pieces that we have seen with both the organization and we have definitely respected each other, we have really come down very, very well. Last five months has been good, definitely there were lot of hiccups that the business had earlier when we took over and I think Suchi has been playing an instrumental role, the team has been really working hard for the last five, six month to try and bring back the existing business on track, bring back that the core business on track.

And then also integrate with the V-Mart team, integrate with the with this particular office and try and see how do we, how do we bring in the team effort in trying to take up the organization and take up the omnichannel approach and that’s what, that’s what we are talking over, definitely not too many things have happened on those lines till now, but yeah, we have lot of plans, we are working on those of things. Whatever we have done till now, the way we have launched our V-Mart products on LimeRoad channel, the way the customers are getting excited on those and the way the teams at the headline go seize the opportunity.

I’m quite excited and I believe that there could be a unique model proposition which can be predicated and we are definitely here, we are investing for a long term. We believe that the long-term story is just not going to be a brick and mortar order or an online. It is definitely going to be a multi-channel or omnichannel approach from the consumer side and which is going to remain and be there.

So for a sustainable retailer, for a retailer to sustain at a longer level, every retailer has to definitely have a very, very strong digital arm and that’s how V-Mart is preparing our self and we are investing in that particular business. We understand V-Mart has not been not been very, very eager to fund the loss-making businesses, because every time even our stores which create losses, we have always, we’ve shut down those businesses or slowed down business. So we definitely believe and we will definitely invest into those businesses, so that we believe in the long-term sustainability of retail and long-term sustainability of our business. So I think those are some of the great work that is happening in our company.

Even in the Unlimited pieces, I think we have been, we had experimented few things, there are lot of good things which has happened, there is still lot of things that we believed should give a response and we did not really get those taken in [Indecipherable]. We believe there is more communication needed in that market. Our new stores in those markets have really fired very well, especially Southern States and Southern store line, the TAP model in Unlimited are in Southern India, there is lot of potentiality, there is lot of room, there is lot of opportunity in that market that we can see and we would want to focus a little more higher on that. We are excited with that opportunity and we believe there is lot of growth possible there.

So we are focusing a little more on those Tier 3 markets in Southern India. We will be very, very, very, very focused on bringing down the losses in some of those stores which are not performing or close down some stores if required which we are not able to bring back.

So that’s how we are taking it up, definitely same-store sales growth is very important. There is a pressure on the same-store sales growth, which is not — not coming. But yeah, I think we are coming back on track. We have seen a good growth in the last year, in the last quarter. We would want to and we are seeing some healthy signs also in this current year. And definitely, we are not expecting lot of growth because there are, there are some months in this current year according to Hindu calendar where weddings are not there, there are some months which are — which will come in.

So we will have some almost a neutral first quarter and the second quarter we’re expecting. We are expecting a lot of growth coming in from the third quarter and that’s how we see into this market. I will definitely request Anand to take over from here, give you a brief about the number, there are definitely lot of numbers, then lot of questions that we would have. We would definitely going to answer all of this.

Anand over to you.

Anand Agarwal — Chief Financial Officer

Thank you, Lalit and good evening, everybody. We have actually given a lot of information in this quarter’s investor deck. So I will not take a lot of time, but let me just take you through some of the key highlights from the quarter and then we can — I’ll also ask Suchi to give us an overview on how LimeRoad is progressing. So on the quarter, it has been a good quarter with sales growing at 30% year-on-year and for the full year we grew at 48%, with same-store sales growth of 10% for the quarter and 23% for the full-year. This year in fact was also our highest ever sales and in fact it was also 45% higher than our pre-COVID numbers of 2019, 2020 at a overall level.

For the quarter both V-Mart stores, as well as Unlimited stores like-to-like V-Mart at 11% and Unlimited at 4%. Tier 1’s markets continued to outperform the Tier 2, Tier 3, Tier 4, reinforcing the tier craft recovery that we’ve been seeing. But as Lalit said, yes, there is some betterment which we are now starting to see in these smaller Tier markets as well and particularly around Tier 3. There were good growth in footfalls, as well as volumes. We strategically dropped our average selling prices by 5% during the quarter, it was a planned decrease in line with our strategy of attracting more footfalls by increasing the mix of lower priced products and also some strategic price reductions.

As a result of the slight correction in pricing and tilting of the product mix towards more value offering, the gross margin for the quarter reduced to 32%, while this is lower than 35% what we achieved last year, but definitely much higher than the average range of 28% to 29% that we used to have pre-COVID.

The last year’s margins were significantly higher due to the impact of higher price increased system, which has now been corrected. On the expense side, while the expenses have increased by 52%, they also include the full impact of the newly acquired LimeRoad business. The expenses for the quarter include an amount of roughly around INR38 crores towards the spend on the entire online business including the opex for both vmartretail.com and limeroad.com. Excluding the online business spend, the expenses for the quarter grew by roughly around 23%, which reflects very well with the overall sales increase.

The major impact of the expenditure on the online business is in the marketing expense line, which is at a overall level 1%. And other expenses which includes technology cost, delivery and fulfillment cost for the online platform. As I had mentioned in the past as well, the business revenue in LimeRoad consist only of the commission earned from sales facilitated for sellers, while the expenses largely consist of marketing logistics and technology costs.

On a go-forward basis, we are very confident of establishing LimeRoad business as a very strong growth driver for the organization and remain committed to invest in the journey to reach sustainable and profitable destination. As a perspective, Unlimited has also taken one plus, one and half years to come at full year profitability. And we have similar project planned for turning around LimeRoad and Suchi is leading that, the good part is that the team is delivering very close to the multi-growth plans and whatever plans that we have talked about.

Coming to EBITDA for the V-Mart core business, EBITDA for the quarter came in at 7.5%, with Unlimited at 11.9%. The Unlimited EBITDA does not include any cost allocation of headoffice expenses which usually averages somewhere around 4% and that is why it is showing a bit higher in comparison. But happy to share that Unlimited business is growing strongly profitably and helps us achieve good EBITDA at even 20% to 25% lower sales per square feet and that’s the strong growth that has happened in the last one and half years to control the expenditure, to improve the sales per square feet marginally and the results are for us to see.

The Unlimited team is now working on increasing the sales productivity and once that is also achieved this business should start yielding even better return. The overall EBITDA for the quarter was marginally lower than last year, majorly on account of lower gross margin and the expense incurred on LimeRoad. On the capex side, we’ve spent roughly around INR270 odd crores in the year, which largely comprise of expenses on the new warehouse, which is now scheduled to start operation by the end of this month. Other capex included spends on 59 new stores and refurbishment of old stores apart from some high — some IT-related expenditure and the investments in acquiring lines of business. There have been marginal improvement in the overall working capital cycle due to increase in payable days and margin control over inventory.

The company opened 59 new stores during the year, 47 in North, 12 in South under Unlimited brand. We also closed 16 non-performing stores, 13 in V-Mart and 3 in Unlimited. There has been increase in store closures for the last few years, but as discussed as a discipline retailer, we keep assessing any possible non-performers continuously monthly basis to fair out any future losses.

Largely the stores that we have closed in the last few years all belong to 2019 and 2020 stores which actually did not get a very good runway to reach maturity because of the COVID related impact and somehow they could not just come back come to the overall V-Mart level or expected level of [Indecipherable] and profitability and that was the reason for their closure. I think largely the closures have done have been done with and there should not be any more significant closures this year.

So coming to LimeRoad, I think LimeRoad has shown great potential in the last five months, the number of orders have increased substantially and the revenues have also increased substantially. I will request now Suchi, who is leading the LimeRoad resurgence to update us on the performance and plans. Thank you.

Suchi Mukherjee — Chief Executive Officer

Thank you, Anand. So we’re now nearly five and half months in core deal and in the first full quarter as part of the Group. It has been a period of a lot of block and tackle, deep operational operation to stabilize our self and we have been able to deliver condition subsequent related to the deal as planned. With that, the team has also been able to deliver 88% top line growth, as well as delivered EBITDA, which is better than plan and I feel good about that.

One of the key challenges going into this deal of course is operational, but also team related. We are excited that the team has stabilized, we’ve not had even a single regretted departure. Culturally, I think the great thing is that we found voices right that keep our cultural differences intact, online and offline together are two different worlds. And yet, it’s great to see that we found a way of working. There’s still lot of collaboration to do, but the important thing is that we’ve managed to find the voids, as well as high velocity turnaround and actions.

I’m also excited that internally the landlords theme has been able to build line of sight to inflecting deeper metrics on the P&L. That’s a good thing and not everything we try will succeed, that’s the reality that’s par for the course. But I love the spirit and I’m glad that the vision with which we went into the deal continues to pervade in terms of actions and it’s only these that will yield outsized outcomes.

So overall a decent first quarter, I feel good about it, but it’s still day one and lots to do. Over the next few quarters, we will be building much deeper rights to win this value market. Lalit talked about the emergence and the greater velocity of emergence of this aspirational India. We are going to double down with our first pillar on category supply. Well, we will uniquely be able to marry LimeRoad score inherent strength in category editorial trend spotting, curation, data in terms of projections, together with VM strong backend in delivering value pricing as what I call emerging, hash tag insta trend fashion at really high quality and value pricing.

I think that will be disruptive, it’s something we’ve always wanted to do and I think that’s what’s going to be at the heart of the category supply thesis at LimeRoad. Second, we will do a lot of deep work, we already are doing it on search and discoverability for our users. We think of our users of transcending offline and online what people call omnichannel and we’ve been playing a lot with of course stuff like GPT-4 etc which we think will fundamentally have the ability to inflect user experience, right both online, in our stores, as well as we’ll have some interesting cost characteristics.

So technical product roadmap, data roadmap there, in place and we’ll be able to share more stuff over the next few quarters. And the third leg is trust, online we will be bringing VM’s core capability in terms of pricing meets quality. And I think that’s an important leg building trust online. I feel like we are uniquely positioned to do that. And then finally we all care deeply about the P&L and the team will deliver a stronger P&L.

Thank you so much for listening in.

Operator

Should we begin the question-and-answer session? Hello? Should we start the question-and-answer session?

Lalit Agarwal — Managing Director

Yes, please.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have our first question from the line of Sameer Gupta from India Infoline. Please go ahead.

Sameer Gupta — India Infoline — Analyst

Hi, sir and thanks for taking my question. I have few, so firstly, we’ve seen store additions of around 43 in FY 2023 on a net basis and this will translate to around 12% retail area, even if it gross additions will be around 15%. Now historically, we have always maintained a 20% kind of retail area addition. So is FY 2023 first of all an aberration? And going forward, if the demand environment takes a little more to improve, you mentioned that the next two quarters wedding calendar is skewed. So are we going to go slow in store additions in that taking that info in account. Now we also have a net debt of around INR120 crore, historically, we have always been net cash. So I mean, how are you looking at these things?

Lalit Agarwal — Managing Director

Hi, Sandeep. So let me take this up, see our belief remain similar and our approach to open up the number of additional square feet is similar, definitely in the last year this was an aberration where we had to close down and these close downs are not those close downs that we’ve normally done because see if you understand that we had opened up 59 stores in the year 2019, 2020. And those stores, some of those stores saw six months, some of the stores saw four months, some of the store saw eight months before the COVID hit and those stores did not see a good run rate.

So there has been lot of pressure in those kind of stores, which we opened in both 2019, 2020 as well as 2021 and then we have seen definitely up lower per square feet sales, again negative EBITDA from some of those stores. So we are taking some corrective measures. We are working on lot of stores to try and improve those — their performance and wherever we see some of the stores are not coming into back in to our control and we are not able to call in the customers and we have some locations issues or we have some higher rentals or the EBITDA is not building up.

So that is how we have taken a call to close down the stores. So the net number that you are speaking about is post closing them, we will definitely focus on adding not 20%, but yeah, around 15% to 16% additional square feet and that’s the model that we have. We definitely don’t want to conserve cash because of this, because our belief in the India market, in the Bharat market is for long-term and we would definitely keep investing in this belief, in the times to come, even in this particular year and the next year. So we will keep adding up our store and we will be adding more than the number of stores that we have opened this year not on a net level, but on the gross level. So I think we are targeting something above 60 stores in this particular area.

Sameer Gupta — India Infoline — Analyst

That’s very helpful, sir. Very clear. Second question is on the cash capex we have seen around INR270 crore in FY 2023. And if I just add back the INR80 crore of warehouse and INR67 crore of LimeRoad, it is still INR110 crore kind of a capex for a gross addition of let’s say 59 stores. So that translates to around INR2 crore per store versus our historical rate of around INR1 crore. So I just wanted a reconciliation?

Anand Agarwal — Chief Financial Officer

So Sameer, the capex on the warehouse is roughly around INR109 crores and the LimeRoad spend around INR76 crores. And yes the balance is towards some automations, technology interventions, store refurbishment. We actually every year we do some amount of at least 10 to 20 stores, which we go under refurbishment and the per store refurbishment cost usually average around INR20 lakhs to INR30 lakhs, on top of that there is 59 new stores that have been added.

Sameer Gupta — India Infoline — Analyst

Got it, sir. So going forward, these refurbishments probably will continue, but the automations and warehouse is done. So I can take that as non-recurring, right?

Anand Agarwal — Chief Financial Officer

Yeah, substantially, yes, but still we would keep incurring some amount of technology interventions, technologies if changing at such a fast scale that we will need to keep investing at least some bit, but it may not be very substantial.

Sameer Gupta — India Infoline — Analyst

Got it, sir. I have few more questions, but I’ll come back in the queue, let others also get a chance.

Lalit Agarwal — Managing Director

But just Sandeep adding to your point, the warehouse is still not operational. So there is some additional investment which is going on in the current year as well, so which will continue a little bit. So we’ll see some number coming into this year on [Indecipherable].

Sameer Gupta — India Infoline — Analyst

Would that be material?

Lalit Agarwal — Managing Director

No, no.

Sameer Gupta — India Infoline — Analyst

Okay, thanks.

Operator

Thank you. We have our next question from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.

Shirish Pardeshi — Centrum Broking Limited — Analyst

Hi, Lalit ji, Anand ji, good afternoon, thanks for the opportunity. Let me start, beginning with the on-ground reality, I think the quarter gone by, we have seen a demand around festive season and you alluded saying that, you are expecting a demand recovery after quarter two, quarter three. Can you give us the roadmap, how we are trying to build, because on one side, we are building the store network and other thing. And we are also trying to extract the efficiency from the various teams, but in a medium to short-term, how should we look at and build in the revenue contribution from all these three businesses?

Lalit Agarwal — Managing Director

Shirish, hi, this is Lalit, we can’t clearly give you a indication that how are you going to build up your revenue duplication. We definitely are targeting a positive same-store sales growth, we are not seeing a very, very high same store sales growth as we had seen in the last year, so last year was basically — the outcome on the base effect as well. So, definitely we are expecting a positive like-to-like growth from the existing stores towards the mid-single digit or a little higher mid single-digit number, that’s what we should be targeting.

We definitely believe we will open up, as I said 50% to 70% of the retail area to add up. We definitely have a plan for the online business that we have because we were contributing around 2%, now maybe get into a 3%, 3.5% of our revenue. We could take that to maybe target to that take that to maybe 8% to 10%. So that’s how I think maybe you could back calculate those and then I’ll say and what’s the number that you can think because see we definitely see as I said, India is growing, there has not been any companies that we have, we definitely have implemented those in a product strategy, where we had a pressure last year, where we increased our prices and the consumers went away. We this time we have really worked very hard to bring down the prices, our ASPs are now lower by almost 7% to 8% almost 10% [Indecipherable].

So and we are attracting those customer back who went away from our stores and which we didn’t see. So we are — we will definitely expect those things to come back and then when, when the market comes back this particular bottom of the pyramid, the mass audience this definitely is our loyal customer and we have been the best one providing them and we still believe these people will be shopping with us.

Shirish Pardeshi — Centrum Broking Limited — Analyst

Okay, that’s helpful. On the Unlimited piece, I just wanted to have one question on the margin improvement, though it is heartening that you have done a fantastic job, but in a steady state what are the things you have done and whether these margins are sustainable or can we say that it will improve from here? And what are the things which you have taken the measure to improve this business profitability?

Lalit Agarwal — Managing Director

So, I think Shirish, as you understand, we went into with a dual pricing approach and we had a, we had a higher even if the same products are selling in both area, we have a little higher priced product in the South India with same item. So that’s how we bring in a little extra gross margin in this business. And that gross margin, we have seen a good response from the consumer, accepting those product line. We have been very, very careful on our RMR expenditures, we have definitely started conserving lot on those, that is where we are bringing and additional margin, we would expect one from the same-store sales growth of the existing ones, how do we bring back still those 20%, 25% or 80% [Phonetic] stores which are still not providing positive EBITDA.

So we will have to work on those to try and improve their EBITDA and take some decisions there. Three, we will have to really open up new stores. We have plans to open up a little additional new stores in the Southern territory versus the other territories. So we will, we will focus on adding more stores in the Southern territory and those Southern territory stores if you understand, we are opening on the V-Mart model. And the V-Mart model of expenses but the margin remains at the higher. So that definitely will help us to give us a little extra alpha margin and all those, all those stability should give us a good healthy Unlimited P&L, so that’s how we are targeting.

Shirish Pardeshi — Centrum Broking Limited — Analyst

Okay, that’s helpful. My last question to Anand ji. On the LimeRoad account, we have taken a loss of INR44.1 crore. Can you just give little more color is that absolute loss is in terms of inventory write-off or bearing something? So some more color on that. And should we have some more such losses to be incurred in FY 2024?

Anand Agarwal — Chief Financial Officer

So, the INR44 crore loss from LimeRoad actually includes a one-time expenditure of roughly around INR12 crores, which we also highlighted in our last quarter, which is some — so on a go-forward basis, I think as I explained during my opening remarks as well, LimeRoad expenses primarily consist of marketing, technology and fulfillment cost and that is where there is a increasing improvement that we see in terms of how we are able to reduce the cost per order in terms of all these three aspects and that’s what the team has been working. And we should see quarter-on-quarter improvement in the loss numbers, I will not say that this business is going to turn profitable in one year. I think it is a longer runway, we had originally guided that we should be looking at profitability only in after year two, we would want to better that, but as of now I cannot give a timeline, but definitely we should see improvement at least in the loss numbers in succeeding quarters.

Shirish Pardeshi — Centrum Broking Limited — Analyst

So would you, would you give some sense, what is the cash burn which we are expecting in FY 2024?

Anand Agarwal — Chief Financial Officer

We had guided in our last call as well that we would want to tap our exposure on LimeRoad losses towards to 20% of the overall group EBITDA and that should translate to roughly around INR50 crores to INR60 crores, not beyond that.

Shirish Pardeshi — Centrum Broking Limited — Analyst

Okay. Thank you Anand ji. All the best.

Operator

Thank you. We have our next question from the line of Amit Khetan from Laburnum Capital. Please go ahead.

Amit Khetan — Laburnum Capital — Analyst

Hi, thank you for the opportunity. Lalit Ji, you have in the past talked about Tier 3 and Tier 4 not doing as well as Tier 1 cities. Now, if I look at your Slide 11, right, the sales per square feet data indicates otherwise is this because Arvind stores are the Unlimited stores are muddling the Tier 1 and Tier 2 data?

Lalit Agarwal — Managing Director

No, I think is what you are seeing either sales per square feet and that definitely is both Arvind stores, as well as the way we categorize our Tier 1. So for us like even Patna is a Tier 1 and Guwahati is a Tier 1 and Bhubaneswar is a Tier 1 and Lucknow is a Tier 1. So that’s how we see and we have definitely added lot of stores there in this Tier 1 towns, sudden flagship stores also got added in Kolkata, Bhubaneswar. So I think, so we are seeing a little higher sales per square feet there, but largely we were talking about the growth, the degrowth. And then I think we have been always a player who have been and we all know about this geographic economy and we have always told the upper, the Tier 1s are doing little better compared to Tier 2 and Tier 3 and that is how the Tier 3 have still not grown over the last three years, that is why the sales per square foot in this business seen a little lucrative.

Amit Khetan — Laburnum Capital — Analyst

No, no, but the data shows otherwise right, Tier 3 sales per square feet is higher than Tier 1 at least in the slides that you have shared?

Anand Agarwal — Chief Financial Officer

Yeah, Amit, let me just add that. So actually, yes you are right. So partially this is a combined impact of Unlimited where the sales productivity in some of their stores in Tier 3 is slightly higher. Additionally, we also have some very good performing stores in Tier 3 traditionally which have also been outperforming. So even when you look at in the same slide when you look at the FY 2022 data also, the Tier 3 numbers outsmart every other Tier. So it’s got a stronger base, it’s also grown for both the reasons as I said, one is the UL mix, Unlimited mix and second is the higher concentration of higher performing stores in that particular Tier.

Amit Khetan — Laburnum Capital — Analyst

Got it. And how do you categorize Tier 3, what kind of cities would fall in this?

Anand Agarwal — Chief Financial Officer

Tier 3 typically are cities with more than two lakh population. These are typically district headquarters or districts and cities with less than one lakh population fall in the Tier 4.

Amit Khetan — Laburnum Capital — Analyst

Understood, understood. And lastly on this sales per square feet metric, right, we were doing about 800, 850 just prior to COVID or maybe a year before COVID. Right now we are at 620 overall, and 650 for the V-Mart franchise. How do you see the trajectory of this metric oversee the next one or two years?

Lalit Agarwal — Managing Director

I think, see, Amit there is definitely lot of efforts which are going on and there has been lot of new addition of stores, which we had and lot of performed well, but new additions square feet of Unlimited at a lower base is also positive. I think we are inching towards those, the new stores that we are adding up even V-Mart are seeing more than INR700, INR750 per square feet sales coming in. So I think we will be, we should be back to those numbers maybe the next two years. It will take some more time to reach that number, but, yeah, I think we have, that’s how I said in my opening remarks, we are merging on those fundamental indicators and fundamental levers which will drive all of this and this is what we are doing, so all those new comers which are coming in definitely attract consumers attention also. And I think most of that has happened, so we will see — we will see these numbers coming in two to three years period.

Amit Khetan — Laburnum Capital — Analyst

Got it. But would it be fair to say that we would reach our normalized margins only once we reach that 800 kind of mark or can we achieve that with a lower number as well?

Lalit Agarwal — Managing Director

I think you guys have the calculation, you will understand at this particular rate of price, store sales per square feet, how we performed on the P&L and the moment we increase our P&L even by INR50, INR30 per square feet, how does it come into the bottom line. So most of our expenses are fixed in nature, so definitely any addition in the top line will definitely will lead us into the bottom-line. And with the initiatives that we have taken up internally on procurement, on sourcing, on planning, all of those should also better our margins going forward. As of now, we definitely are working to bring back customer to give them the confidence on the prices, so we are working with a very, very constraint margin. So we don’t want to give you a very big much hope on those margin rights. But yeah, this increase is definitely whatever we are doing internally will definitely help us to improve those margins in the coming days.

Amit Khetan — Laburnum Capital — Analyst

Got it. Thank you and all the best.

Operator

Thank you. We have our next question from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital — Analyst

Hi, thanks for the opportunity, few questions from my side. Sir, Lalit ji, you spoke about engaging with some consultants during the year or last couple of years. If you can share some of the details of the project on, what exactly are we trying to improve or optimize in, where are we in that journey?

Lalit Agarwal — Managing Director

So, Tejas, we are technically as I said, the whole consumer understanding, category understanding, redoing most of those, understanding the market scenarios, understanding the international trend. How do we integrate all of those and then bring into our plans and then have those capability internally of designing and you understand that wherever we have a story, we always use to believe that we would replicate the styles of bigger brand, replicate the size of international fashion.

But we never used to have a core internal design team and this is what we have developed. So we have splitted our merchandising department into three parts designing, buying and sourcing and that’s the outcome of the project and we have created a strong design team with a design head that’s definitely giving us very good edge to V-Mart where we are able to track similar fashion which the Zaras of the world [Indecipherable] the world can do.

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We are focusing on similar lines, we are definitely curating those with the requirement of the — of our consumers. So some of those pieces happen. We have created a technical and a quality department which is definitely working on strongly on bringing up the quality level, bringing up the technicalities of the product fabric, bringing in innovation there because we just don’t want to increase the prices whenever the raw material prices increase, how do you bring in innovation, fabric development, how do we — how do you work with the means from the company’s, fabric companies to try and bringing those new innovations onto our floor, bring down the cost of the product.

How do we — then we have a sourcing department, just separately created just to work more on the cost benefit, costing analysis, work on those scalability of the vendors, bettering the quality aspects of the vendors. So I think all of those departments and then the whole planning pieces, bringing digitalization into analytics, analytical based store understanding, analytical based categories store projection. So lot of work is happening on all of these lines, so that we will and apart from that also lot more is happening internally deep.

Tejas Shah — Spark Capital — Analyst

Sure. And Lalit ji, how long has been all these initiatives, have they been been implemented?

Lalit Agarwal — Managing Director

Last 12, 15 months. We’ve been working on these for the last 12, 15 months. We have started the implementation, I mean the project have started now, started some deliveries have started. This is also a transition period for V-Mart. We were not in that mode when the organization restructure, there are lot of ambition which happen. It will definitely — the Chain Management also adopted these pieces which are going into many into organization. So we have started some of that option, you will see some benefit coming into the in this AW period, this is autumn winter period, which starts from August itself. And then we should see finally most of the — most of the initiatives results should be visible in summer 2024 period as well.

Tejas Shah — Spark Capital — Analyst

Sure. And does it also mean that our private label share or strategy will also be in line to this or that is independent of what we are doing on this?

Lalit Agarwal — Managing Director

I mean definitely whatever happens all of these are doing in the private label. So whatever that we do in the private label pieces, this is where, this is how we are going to follow, so that’s what I’m explaining you.

Tejas Shah — Spark Capital — Analyst

Perfect. Second question Lalit ji, historically in your listed, we have always seen as one of the most prudent and conservative retailer who has always avoided debt even in the volatile period of demonetization or GST transition or even on COVID. Now even though it is tangent, but we have now debt on the book and the kind of investment that LimeRoad will require or as expansion in North and South will acquire. How do you — how do you plan to actually go ahead on this part of balance sheet?

Lalit Agarwal — Managing Director

No, I think you’re absolutely right, Tejas and your concern and my concern are similar and, yeah, I look at the same way that you are looking right now and then we have always believed in having cash in our books and that’s how we have won. But, yeah, definitely — we believe in the potentially of the market, we believe there is a lot to come for India at this time and this is what you guys have referenced and always guided us that this is the time that we should invest into the market.

And we have started investing, we just don’t want to be a pure traditional mindset company which is only investing from equity. We definitely want to have a right balancing between equity and debt, not that we will focus on building the debt, but yeah some balancing should always be done. But yeah, we are in the process, we have also invested heavily in the infrastructure and development of warehouse.

So we have that asset which is already built and that is getting built. If there are any kind of pressure that we look at in the balance sheet, we have the ability to offload those that asset as well. So I’m not indicating that right now, but that’s something that we could think of, but yeah as of now, we are very confident that our internal cash flow the way we have designed our projection, our internal cash flow we should be positive on those issues with our numbers and we should be able to take care most of our expenses internally as well and most of our expansions internally as well if we are able to do.

We definitely have to work hard on inventory management, our working capital management, we have to work hard on even our asset management. So we are tracking all of those areas and we have multiple projects like that to improve on this.

Tejas Shah — Spark Capital — Analyst

Sure. And lastly question for Ms. Suchi. Suchi, usually online businesses are known for a kind of scale first and profitability later, while value retail culturally is designed to be frugal in nature and squeeze out every penny of sufficiency possibly from the cost structure. And so where do you see LimeRoad kind of culturally fitting into the V-Mart, A. And B) if you can answer also how do you see ONDC as an opportunity to kind of expedite our journey on going on omni path for V-Mart and LimeRoad both?

Suchi Mukherjee — Chief Executive Officer

Tejas, your questions are in two parts, one is cultural, the other one is ONDC. Look on the cultural component, if you think about the businesses that have done really, really well, right, globally you think about online businesses like FC, Longtail lifestyle products, they have really high healthy EBITDA margins, right? And I care really about creating value, value for our consumers, value for our shareholders.

So, actually I think the meeting of minds was around those two values that how do we win for our consumers and how do we win for our shareholders. And I have no doubt in my mind that comes by generating true cash through returns. And if you look at our pre-COVID history, as an independent company, you will know that LimeRoad has never ever deeply discounted to grow and we’ve never really taken inventory on our books. Historically, we’ve always been select cash first business, so those are part of the DNA and that is part of the reason why this partnership works.

So hopefully that answers your question and I see no deviation there and we are all fully committed to continue to deliver that, while injecting the truly different cultural DNA that I think we bring to the table, which is tremendous that DNA, tremendous data DNA, opening up the TAM for the group, right? We’re looking at the consumer who is really 28 plus highly fashion, high aspiration on fashion, but still very value seeking. And so that’s what we will deliver and I think we will, you will see us consistent on that.

On your second question on ONDC, ONDC, we’ve looked at it quite deeply, we’ve done a lot of that integration work already and we don’t have a firm view this could go either the UPI route, which means it could explode and make digital really large in India, it could also be marginally muted. So it’s too early to call, but I think, I do think that — it is a great initiative to enable digital transactions and anything that supports that I think we’re fully supportive of.

Tejas Shah — Spark Capital — Analyst

Thanks, and all the best.

Operator

Thank you. We’ll take our last question for today from the line of Rishi Mody from Marcellus Investment Managers. Please go ahead.

Rishi Mody — Marcellus Investment Managers — Analyst

Hello? Am I audible?

Operator

Yes.

Rishi Mody — Marcellus Investment Managers — Analyst

Yeah. Hi. My question was for Mr. Anand. Anand, the way I see it right, currently the bond rate of LimeRoad alongside the store expansion plans, and the debt on — the short-term debt on books, I think we’ll be having to raise any equity if the operations don’t turn around. So just wanted your view on any potential plans to raise equity and the content.

Anand Agarwal — Chief Financial Officer

Hi, Rishi. No, there is no plan to raise any equity or dilute equity. That’s not — that’s absolutely not on the anvil. I think the way we have structured our plans, within the four walls of the plan for next year, we should be able to manage the burn on the LR because — on LimeRoad because we have already got a staff in place internally. On the stores’ expansion, the numbers that we’re looking at, we’ve worked around them, and we’ve only quoted numbers which we can finance and which we can manage from the current gross. There will be some amount of average short-term debt, working capital utilization, which will keep happening throughout the year, but there is nothing beyond that, that is planned. If there are any substantial headwinds in inflows, we may need to structure some of — restructure some of our expansion plans, but that’s it. I will not definitely seek any additional capital inflows.

Rishi Mody — Marcellus Investment Managers — Analyst

All right, got it. Thank you.

Operator

Thank you. I would now like to hand over the call to the management for closing comments. Over to you, sir.

Lalit Agarwal — Managing Director

Thank you, everyone, for being there. I definitely understand there is a lot of obstruction getting built over the Company, and I definitely want to register everyone this question, what has changed, and nothing has changed. I think we have — we are working on our plans. We are working on what we have communicated. We are definitely working on what is good for the future of retail and the future of the Company. We are definitely taking a certain risk, which is not showing up in the number, and we believe in the long-term story, we will definitely take most of the actions which are benefiting our long-term story. And we definitely are those fundamental cultural companies who don’t just look at those quarter-on-quarter numbers.

We understand there are macros and there are situations in the market. We definitely don’t want to get pressurized and nervous on taking certain short-term calls to improve our numbers. We will definitely work and keep working on improving our strength to offer and give a great experience to the consumer, and that’s both digitally and physically, and that’s what our endeavor is. And we remain sure on these lines. We definitely — you could lose patience at times. We would want to be more and more transparent. We would definitely want to keep everyone more informed in whatever we could possibly do. But yeah, you guys have to also support the team and then build your models accordingly. So — great, thank you so much for being there and being confident on the Company. We definitely would deliver and keep delivering to your expectation. Thank you. Have a great day.

Operator

[Operator Closing Remarks]