V2 Retail Ltd (NSE: V2RETAIL) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
Akash Agarwal — Whole Time Director
Analysts:
Unidentified Participant
Palash Kawale — Analyst
Yash Gandhi — Analyst
Ankush Agrawal — Analyst
Varun Singh — Analyst
Chintan Shah — Analyst
Harsh Gokalgandhi — Analyst
Yash Sonthalia — Analyst
Tejash Shah — Analyst
Shreyansh Jain — Analyst
Vinayak Kariwal — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to V2 Retail Limited Q2 and H1 FY25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. Please note that this conference is being recorded.
Before we begin, a brief disclaimer. The presentation which V2 Retail Limited has uploaded on the stock exchange and their website, including their discussions during this call, contains or may contain forward-looking statements concerning V2 Retail Limited business prospects and profitability, which are subject to several risks and uncertainties, and the actual result could materially differ from those in such forward-looking statements.
I now hand the conference over to Mr. Akash Agarwal, Whole Time Director, V2 Retail. Thank you, and over to you, sir.
Akash Agarwal — Whole Time Director
Thank you. Good afternoon, everyone. A very warm welcome to our quarter two and first six months earnings conference call. I hope everyone had an opportunity to look at our results. The presentation and press release have been uploaded on the stock exchange and our company’s website. Building on the momentum of a record FY’24 performance, we are pleased to report a strong first-half performance in FY25. Our outstanding results underscore the effectiveness of our strategic initiatives. The performance demonstrates our commitment to sustainable growth, customer delight, and operational excellence. We are confident in our ability to maintain this trajectory, driving continued success and value creation for our stakeholders.
Our team of designers, merchandisers, and inventory managers drives our competitive advantage, distinguishing us from the competition. Their specialized knowledge enables us to design on-prem products that captivate customers, curate assortments that anticipate market shift, and optimize inventory for efficiency and sustainability. This expertise fuels our ability to stay ahead of fashion trends, meet customer needs with precision and minimize waste, and maximize value. Our team’s expertise is the backbone of our success, empowering us to deliver exceptional products, experiences, and value to our customers.
Let me start with some key updates. We are thrilled to start the current financial year with record half-yearly sales during the first half of FY25 and 2,551% increase in year-on-year PAT. The company added 22 net stores during the first half of the year, taking our total store count to 139 stores. We have added another five stores during the current quarter, taking the current store count to 144 stores. The store addition momentum will continue as we have a very healthy pipeline of upcoming stores.
We have seen robust demand in ongoing festive season, and we are very hopeful that ensuing wedding season and the winter season will further strengthen our position in the areas we operate. The growth across all our stores have been encouraging, translating into a robust SSG of 36% in the first six months of this year. We have been able to consistently deliver high double-digit SSG for the last few quarters due to our customer-centric and product-first approach. The volume growth has been 49% in the first six months of the year. The full-price sales contributed 91% in the first six months of the year compared to 85% in the last year first six months. We believe that our sustainable and scalable business model will help us to improve our ROTE and ROE going forward.
Now I would highlight some performance highlights for the first half of this year. Revenue from operations stood at INR795 crores, registering a growth of 61% on a year-on-year basis. Gross margin stood at 28.2% compared to 29.4% last year. EBITDA for the quarter stood at INR88.5 crores as compared to INR55 crores in the same six-month period last year, registering a growth of 60%. EBITDA margin stood at 11.1% as compared to 11.2% last year. PAT stood at INR14.4 crores as compared to INR50 lakh in the corresponding period last year.
Now performance highlights for the quarter. Revenue for the quarter stood at INR380 crores, registering a growth of 64% on a year-on-year basis. Gross margin stood at 27.3% as compared to 28.1% in the corresponding quarter last year. EBITDA for the quarter stood at INR33.1 crores as compared to INR19.9 crores last year, registering a growth of 60%. EBITDA margin stood at 8.7% as compared to 8.6% in the corresponding quarter last year.
With this, now I leave the floor open for questions. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Abhishek [Phonetic] from ABC Capital. Please go ahead.
Unidentified Participant
Hello. Am I audible?
Akash Agarwal
Yes, you are.
Unidentified Participant
Yeah. Just wanted to know what was the cause for the loss in this quarter. Like was it a conscious decision to — in order to get higher volumes? And will it happen in the future going forward?
Akash Agarwal
So, it is historically a cyclical business. So historically, Q1 and Q3, are our strong quarters. But I think because our base has increased now, all four quarters are EBIDTA positive, which was never the case. So we will continue to deliver EBIDTA positive in all four quarters. But if you talk about PAT numbers, yes, it’s a cyclical business where the festive season is during Q3. So that’s usually our best quarter, then it’s followed by Q1 and Q2 is a bit muted and then it’s Q4.
Unidentified Participant
Okay, okay. And the investor presentation showed that two stores were closed. What was the cause?
Akash Agarwal
So one store was not profitable. So we always take into contingency that if we open 100 stores, we might have to shut down four, five stores. And one store we had to relocate because we found a better — like a better floor plate and better location in the same city.
Unidentified Participant
Okay, okay. Thank you. Thank you.
Operator
Thank you. The next question comes from Palash Kawale from Nuvama Wealth. Please go ahead.
Palash Kawale
Thank you for the opportunity, and congratulations on the good set of results. My first question is on employee costs. So our employee cost was slightly elevated in the quarter. So if I look at the historical trends, from Q1 to Q2, there is not much difference in employee cost, but this time, these are slightly elevated. So any reason — any particular reason or just store additions?
Akash Agarwal
So, like we are planning to open another 20 stores in the third quarter. So what happens is there’s a lot of recruitment that happens prior to the stores being opened. For example, there are 10 store managers already getting training in a lot of our old stores. So there will be a slight increase in cost because of the new store opening.
Palash Kawale
Okay. Got it. So what is the total number of stores that you plan to open in H2, sir?
Akash Agarwal
It should be around 40 stores.
Palash Kawale
Okay. And sir, if I look at the size of the opportunity or potential number of towns or cities in the country, how do you see that long-term opportunity or what is the deciding — that particular deciding factor that you take into consideration if you want to enter a new town?
Akash Agarwal
I think it’s too early to have that conversation because until unless we reach 3,000, 4,000 stores, there is enough potential because we look at any constituency that has a population of more than 5 lakh and there are a lot of Tier 1 and Tier 2 towns where we can have multiple stores. For example, now in Bhubaneswar, we have five stores, in Patna, we have six stores. So there is a lot of scope still left. So I think that conversation is once we reach thousands of stores.
Palash Kawale
Okay, sir. That’s it from my side and happy Diwali to you.
Operator
Thank you. The next question is from Yash from Stallion Asset. Please go ahead.
Yash Gandhi
Hi. Thank you for the opportunity and congratulations again on a good set of numbers. So I just wanted to understand how is the festive season been like we’ve already been about three weeks in growth through October. How are you assessing the demand right now?
Akash Agarwal
So I would say even in the first half of the year because we had such a good SSG last year of 31%. We had projected only 15% SSG, but we performed very well and we exceeded our own expectations, and we got a 34% and we’ve seen that momentum carry on to October as well. And — but a lot depends on November and December and the winter and the wedding season. But I would say, we are still doing the high double-digit SSG and we have seen the footfalls also increase quite a bit. So it’s been better than what we predicted.
Yash Gandhi
Okay, okay. That’s good. And so, as you said, that October is coming, your third quarter typically the strongest quarter for the company. And if I look at December ’23 quarter, you had grown by almost 62% quarter-on-quarter. Before that, December ’22 quarter, you had grown by 25% quarter-on-quarter. So do you think then this quarter as well, we could see — I’m not talking about exact numbers, but I’m just saying that directionally, you would see 25%, 30%, 40%, and something along those lines, like a very big jump on a quarter-on-quarter basis.
Akash Agarwal
If you talk about, yes, total revenue, yeah, the revenue growth should be more than 30%, 35%.
Yash Gandhi
Okay. On a quarter-on-quarter basis, you’re saying, right?
Akash Agarwal
Yeah.
Yash Gandhi
Okay, okay, okay, okay. Okay, thank you. Thank you very much, and all the best.
Akash Agarwal
Thank you.
Operator
Thank you. The next question is from Ankush Agrawal from Surge Capital. Please go ahead.
Ankush Agrawal
Yeah, hi sir. Thank you for taking my question. Sir, the first question is around profitability. So how do you see profitability going into third quarter and for the full year, given that gross margin is something that we have seen consistently reduce a percentage or so every quarter? And I do understand that reducing gross profit margin, but having higher operating leverage and the EBIDTA margin is doable. But at what point do you believe this gross margin will stabilize and at what level, if you can highlight?
Akash Agarwal
So we’ve always mentioned that sort of focusing on gross margin percentage, we always focus on EBIDTA percentage. So if you look at the first six months, last year, our EBIDTA pre-Ind AS was INR16.7 crores and this year it’is INR40 crores, which is almost a 140% jump. So I think if you look at EBIDTA, we have been exceptional. And going forward, we always guide that we want to reach 10% pre-Ind AS EBIDTA levels in the next two years to three years.
Ankush Agrawal
10% pre-Ind AS in the next two years to three years. Any idea on how much you will be able to reach this year, FY25?
Akash Agarwal
So this year, our EBIDTA guidance is about INR120 crores pre-Ind AS.
Ankush Agrawal
Okay, okay. The second question is around store addition. So for last two, three quarters, we have consistently seen you exceeding your store guidance. Now this quarter, you’re saying that you’re going to add another 40 stores in H2. So you would be exceeding your earlier guidance of 50 stores in FY25. So I wanted to understand at what point of time do you think that you will curtail the store expansion because beyond a certain point, aggressive store expansion obviously put constraint on operating leverage, your cash flow, and working capital requirements. And over time, the SSG itself is going to taper off from the current high level. So that itself would not allow a lot of operating leverage on existing stores to book more new stores. So at what point do you think you will curtail this aggression because, given the guidance of H2, you will probably close FY25 at around 50% store growth?
Akash Agarwal
Yes. But if you look at the last four years, it was a period of consolidation and there wasn’t much growth, and we did not add a lot of stores. We were focusing on strengthening our model. We were focusing on strengthening our product. And now we see the results of the hard work that we put in the last four years. So now we feel like if we get an ROE of around 20%, then we can easily open 50, 60 stores in a year. So I don’t think it’s a very ambitious number. And that is why like if we get a good location and even the new stores, the base is much higher now.
So two years back, the new stores used to do INR600 per square feet per month. But now even the new stores have a base of INR900 per square feet per month. So we don’t want to keep money in the bank when we can — we have the management bandwidth and the merchandising bandwidth to be able to open 50, 60 new stores with internal accruals because we are not leveraging our business in order to open these stores. So I think it’s a very realistic and a target that we can easily achieve without compromising on business metrics.
Ankush Agrawal
Okay, okay. Got it. That was helpful. Thank you.
Akash Agarwal
Thank you.
Operator
Thank you. The next question is from Varun Singh from AAA PMS. Please go ahead.
Varun Singh
Am I audible?
Operator
Sir, there is a lot of echo. If you’re using the speakerphone, may we request you use the handset, please?
Varun Singh
Yeah, yeah. Yeah, yeah. Sure, sure. Yeah. Thank you for the opportunity. Sir, my first question is on the productivity improvement, revenue per square feet number is quite good for us right now. But on this front, like what is the — how do you look at how much scope is left for improving this number further from the current level of maybe INR900,000. That’s my first question.
Akash Agarwal
So if you talk about scope, I — we have like, I think, more than 20 stores that do more than INR1,400 per square feet of sale also. So I think the day we feel that each and every option or the whole assortment in our stores is best in class, best in the world, that day we’ll be able to tell you, okay, this is the potential that the maximum per square feet sale that a store can do. But I don’t think we will ever reach a day where we feel, okay, we can’t do anything better than our assortment.
So like I said, even with the 31% SSG last year, we are showing a 34% SSG this year. So there are a lot of stores that are already doing INR1,400 per square feet. They are also growing at 20%, 25%. So I don’t think there’s a gap to this number. But yes, our first target was to reach INR1,000 per square feet of sale, which we’ll do — I think we’ll exceed that this year. And our next immediate target would be INR1,200 per square feet of sale per month. But if we talk about potential, I think if your product is world-class and if you sell products at the margin that we sell, which is best in the industry, it’s only a 55% markup, and we are selling 91% of our product at full price, then I think the sky is the limit, there’s immense potential.
Varun Singh
Understood, understood. All right. So I mean, on INR1,400, 25% SSG, if we are able to do it, so then like 1,750 is the number? And if we do in 212 so that INR20-odd thousand per square feet annual that number is quite — I mean that’s quite good, right? Understood, sir. And secondly, on the product development front, like how — what are the key markers for us with regards to what are we doing currently to keep the team at the best-in-class? If you can maybe want to highlight anything on that front?
Akash Agarwal
Yeah. So see, every product has four main attributes, it’s the design, the fabric, the color, the fit. So it’s getting all four correct. So even if you get three of those right and one wrong, then the product doesn’t sell. So in terms of product development, it’s all about research. It’s all about who your inspiration brands are, what kind of fashion are you following, what kind of brand identity you are trying to create.
So like it’s very hard to put into simple work, but there are N number of processes that the team has to go through, whether it’s using some paid tools in order to get what color forecast is there for the next season. What kind of fits are going to sell in the next season? What kind of new fabrics are going to sell in the next season? So I think it’s a mixture of using data, leveraging data in order to see historical trends, as well as forecasting future trends and creating assortment with the best blend of both of that.
Varun Singh
Yeah, got it. So that’s about the product development and about the team?
Akash Agarwal
So like, yeah, we have almost 1,400 to 1,500 team, and all the crucial people have been given retention bonuses, and they are all linked to the profitability of the company. They all have incentives also that is linked to their targets. So I think it’s a healthy situation to be in.
Varun Singh
Right. No, no. Actually, what I meant was like maybe how many foreign trips, etc, that the team would be doing or like what are the activities that they are doing to — which is leading to this fantastic revenue per square feet numbers, etc? So I was — I just wanted to maybe [Speech Overlap]
Akash Agarwal
I can’t — like I can’t — I don’t know the exact number of trips, but yeah, the teams travels [Speech Overlap]
Varun Singh
No. Not exact, I mean, but anything on that front?
Akash Agarwal
Yeah, yeah, definitely. So there’s both international and national brands that we follow. And there’s a lot of international, I would say, sourcing in terms of accessories and fabrics, which is very important to create the latest fashion. So, when I say research, it has to be done internationally and domestic both. And all the division heads, they travel, they see what’s going on, what’s the new trend and that’s how we design our new season.
Varun Singh
And sir, just one last question, if I may. In any of our locations, is there a Zudio store nearby? And if yes, I mean, how has been the performance of that — of the store in that location? That’s my last question.
Akash Agarwal
Yeah. I think we share almost 20 stores where Zudio is within a 3-kilometer, 4-kilometer radius next to our stores, but we haven’t seen any sort of significant impact due to Zudio opening because our ASP is INR260 to INR270, whereas Zudio’s ASP exceeds INR500. So I think the customer class is different. There might be an overlap, but it’s very small overlap. And India is a big market where more than 80% is still in unorganized retail. So it can easily accommodate four, five big national-level players. But, of course [Speech Overlap] it’s course, depends on who’s executing their plan well and what kind of a niche are you targeting and where do you position your brand.
Varun Singh
Absolutely. And sir, for these 20 stores, our revenue per square feet would be more than INR1,000 per month.
Akash Agarwal
I would have to take out the average, but now the company average is more than INR1,000. So yes, I think it will be around INR1,000 [Speech Overlap]
Varun Singh
Yeah, yeah. All right, sir. That’s it from my side. Thank you very much, and wish you a very happy Diwali.
Akash Agarwal
Thank you.
Operator
Thank you. The next question is from Chintan Shah from JM Financial Family Office. Please go ahead.
Chintan Shah
Hi. Thank you so much for the opportunity. So I just had one question. So if you see right now the scenario, I mean, everybody is looking to add capacities or add stores and within our segment or slightly — or even in the premium segment. So just wanted to understand, I mean, this is not from a next three to four quarter perspective, but slightly medium term, what’s giving us the confidence that you’re considering the end customer we cater to, which is sensitive to, say, macroeconomic, as well as other factors? So what’s giving us the confidence that we add such stores and beyond three, four quarters as well, but basically such demand trend will continue. And we won’t see a situation, something like that happened in FY18, ’19. We started adding stores and gradually sales per store, etc, numbers declining? And then something other that hits us and then we get impacted. So this time I just want to understand what is giving us the confidence that we won’t face a similar situation across the industry and for us as well. Thank you.
Akash Agarwal
So, the biggest change, I would say, is the business model itself, and we completely reinvented ourselves. So in FY18, ’19, we were essentially doing a commodity business, where there was no product differentiation. There was no competitive advantage. You could find the same designs of similar products in other stores. So there was no brand identity. So now the work that we put in the last four years, now it’s a completely different business model. So it’s a product-first approach.
And if you talk about value fashion and fast fashion, it’s a global phenomenon for the last 10 years. If you look at brands like Shein, if you look at brands like Pretty Little Liars, Prima. So this is a segment which is not cyclical as a sector. There will always be value-conscious customers. And in India, the middle class is booming. So there would never be a — I think there would never be a time where we would not have a customer base. The customers that we’re targeting is anyone who earns between INR10,000 a month to almost INR70,000, INR80,000 a month, so that covers almost 80% of India.
So if you talk about the business model, then like because the Gen Z’s have a very different shopping habits, where they’re looking for affordability and the frequency of purchases have also increased. So it plays into our strength, and the confidence comes from the fact that we’ve been able to increase our per square feet sale from I think it was INR680, two years back and now this year, we’ll do more than INR1,000. So it shows that the acceptability of the product is there and the customer is actually seeing the value that they’re getting. And they know that the kind of quality that they’re getting in V2, it’s an unmatched price.
So everybody understands value and especially India, we are all value — there are a lot of value-conscious customers. So that’s what gives us confidence that it’s the results and it’s the footfall growth, it’s the revenue growth, it’s the profit growth. And the best thing about this business is the same bandwidth can handle 100 more stores, because you essentially have to just plan the same number of options. So we want to leverage our existing team, the foundation that we have laid and that’s why we want to expand now because the last four years were a period of consolidation. And it was a period of reinventing ourselves, it was a period of working on increasing our per square feet sales and working on the product. And we feel we’ve been able to do a good job in that, and that is why we feel now we want to increase our footprint.
Chintan Shah
Got it. Understood. It’s a fair point. Just one follow-up on that. So if you see all the other organized players also, what even they are trying to do is getting more into private label sales. That is what they’re trying to achieve. So my biggest concern is as they increase their own throughput over, say, next — increase the store count over the next two years basically, then once that value proposition or the increased competitive intensity could hamper our SSG growth? And as you put more stores, actually the numbers that we’re looking at probably that could be lower and that could impact our overall financials. Just wanted to get your [Speech Overlap]
Akash Agarwal
So, see, it’s not about who does private labels or who does product development. Even if you look at the best brands in the world, like if you compare Zara to any other brand, it’s not like Zara has a different process. Everybody does product development. But it’s how you do it. And at the end of the day, it’s the assortment that you put in your stores.
So we feel and the numbers say that, that the assortment that we have is much superior to our peers. So it’s not that anyone who increases their private label contribution or product development is going to get an SSG or is going to grow that throughput because like it depends how you’re executing it because like I said, even a brand who does INR1,200 per square feet of sales does the same process and a brand who does INR700 per square feet of sales does the same process. So the secret sauce is not the process, but the result of the output of the assortment that you get out of it.
Chintan Shah
Got it. Understood. And just one last question from my side, that is on the margins. So right now in this quarter when we had such a strong SSG growth plus ASPs increased plus discounted sales has been lower, such a quarter where margins have really been flat. Now from a next couple of years’ perspective, when you are adding so many stores, there’s obviously going to be cost that going to come in and the current existing stores, if I see the margins have been similar. So while you’re guiding for, say, 10% pre-Ind AS EBIDTA margins, I mean, how do we reach there basically? What will drive this margin expansion?
Akash Agarwal
So most of our costs are fixed costs. So it’s a fixed-cost business where variable cost is a very small proportion of total cost. So even if we increase our sales by 10%, you’re essentially increasing profitability by 18%, 19%. So even in the future, we are guiding for an SSG of 10%. So if you do the math, within two years, we’ll reach an EBIDTA percentage of 10% pre-Ind AS.
Chintan Shah
And wouldn’t that should be impacted by the cost that will come in from the new stores?
Akash Agarwal
No, the cost would not exceed INR200 per square feet per month even if you’re opening new stores.
Chintan Shah
Okay. Okay, fine. All right. Thank you so much for answering my questions.
Akash Agarwal
Thank you.
Operator
Thank you. The next question is from Harsh from Nepean Capital. Please go ahead.
Harsh Gokalgandhi
Yeah, hi. My — all my rest of the questions have been answered. The only question I had was on the store closure going ahead. So with nearly nine stores being closed in FY24 and two stores being closed in the current quarter, what is our target store closure for going ahead?
Akash Agarwal
So currently, like we don’t have any stores that are below the line where we decide to close the store. But like I said, we are opening so many new stores. So there’s always a contingency, and we always take that into account that we might have to shut down 2%, 3% of the stores. So the store closure cost is about INR300 per square feet because most of the fixed assets and other things are used — can be used in the other stores. So it’s part of business. And whenever we open stores, we know there might be a chance that we might have to shut it down. So that’s about — the closure rate should be about 3% to 4%.
Harsh Gokalgandhi
Got it. And if I just may squeeze in one more question. I couldn’t really understand the contraction in our gross margin. The ASPs have improved and as the earlier participant also said that the discount rates have also gone down. But despite of that, the gross margins have remained slightly lower, so reason for that? That’s my last question.
Akash Agarwal
We focused a lot on marketing, and our marketing cost is a part of our COGS. That is why it is reflected in the gross margin. So we’ve been running a lot of schemes and offers for our customers to increase the average bill value and to increase the conversion. And we have seen good results of that. So — and going forward also, like I said, we don’t want to target a gross margin percentage number as long as our absolute EBIDTA and EBIDTA percentage increases, we don’t want to focus on this gross margin percentage. At the end of the day, what matters is if your sales are increasing 20% and your gross margin is decreasing only 5%, it’s still better for our business.
Harsh Gokalgandhi
Got it. That’s all from my end. Festive greetings to you and your team. Thanks.
Akash Agarwal
Thank you.
Operator
Thank you. The next question comes from Yash Sonthalia from Buoyant Capital. Please go ahead.
Yash Sonthalia
Hi. Thank you for the opportunity and congratulations on the good set of numbers. So my first question is, as earlier participants also mentioned like we are upgrading our guidance of store opening, so we’ll be able to open those stores from the internal accruals, or our debt on the balance sheet will increase for the year?
Akash Agarwal
No, it will be through internal accruals, and even that the debt that we have on our books, it’s essentially for bill discounting. So our vendors have a facility where they can take payments and they can discount their bills whenever they want. So we have a CC limit from the bank and we use it because we want to be one of the best paymasters in the industry, and we want to give that facility to our vendors.
Yash Sonthalia
Got it. And second question, like everyone was mentioning the competition in the market is increasing. So many of your peers are opening more and more stores like you. So do you think this will increase your cost of acquisition of customers? Like in this quarter, the advertisement costs increased due to which the gross margins have declined. So do you think structurally your employee cost or maybe your marketing cost will increase?
Akash Agarwal
No, I don’t think it will increase, but rather, I would say, as we are opening more stores, we’ll be able to leverage our head office and DC cost. So going forward, I think the cost per square feet will come down when we open more stores.
Yash Sonthalia
Got it. And we were doing some improvement on the inventory side in our warehousing and stock-keeping units. So where are we on that?
Akash Agarwal
What kind of improvement, sorry?
Yash Sonthalia
So the backup stock, we were trying to reduce from, I think, 30 days to 15, 20 days with more orders coming on time.
Akash Agarwal
Yeah. So we have been able to increase the on-time delivery from almost 40% to 80% in the last seven months, eight months by educating our vendors, by improving our T&A, by hiring a lot of QCs at the source city. And I think the inventory days — the inventory change that you’re talking about, it will start to be in effect from quarter four.
Yash Sonthalia
Got it. So what are our expectations or the ballpark number of inventory days for the upcoming years?
Akash Agarwal
So we should be able to reduce it by 10 days from the last 18 months historical numbers.
Yash Sonthalia
Got it. Thanks. That’s all from my side. Happy Diwali to the team.
Akash Agarwal
Thank you.
Operator
Thank you. The next question is from Tejash Shah from Avendus Spark Institutional Equities. Please go ahead.
Tejash Shah
Hi, thanks for the opportunity, and congrats on good set of numbers. First question is when you see the numbers, it is largely that you have kind of countered the overall slowdown. And then — and at the same time, your number also confirms the feedback that we are getting from FMCG companies that there is some uptick at the mass end of the pyramid. So just wanted to know when you double-click on your store, your growth based by Tier 2, Tier 3, and then metro-wise, what are the consumer trends that you’re reading at overall level?
Akash Agarwal
So I would say, the macroeconomic factors are still a bit negative. Even if you look at the results that have come out in consumer durables and FMCG companies, it’s not that promising. So I would say, the growth that we are showing now is down to our own strength and our own — the changes that we have made. So even if you compare it with our peers, we have been much ahead. So, I think that macroeconomic push is still pending where the overall demand has seen an uptick. So, I think when we see that, then the numbers will be even better because overall rural and Tier 3, I think it has been a bit of a slowdown in the last 18 months.
Tejash Shah
Interesting. And just to expand that point. Are you also seeing that the metro or Tier 1 store would have not done, as well as your Tier, let’s say, 2, 3, 4 stores?
Akash Agarwal
No. In fact, we have almost — I think we have five stores in Delhi now. And three of those stores do better than national average. So even if you have a Tier 1 store, the strategy around the location matters a lot. So even in Delhi, so we are located in a location called Mahipalpur, Kapashera. So you have to be in a location where there are a lot of migrant population and there’s a lot of lower-middle-class, middle-class customers. So like I said, the customers that we cater to is 80% of India. So even in Tier 1, there are people who are servicing the upper class. So if we open a store there, then it does well.
Tejash Shah
Perfect. Second question, just to get some sense on the nature of expansion that you are planning. Are we focusing on deepening our presence in existing markets? Or are we entering new states, new markets? And additionally, if you have to just give a ballpark that what percentage of our expansion will be in existing states, or markets versus the new ones?
Akash Agarwal
S,o I think 80% of the expansion would be in existing clusters or states that we’re already present in. But yes, we are testing new markets also because in the next two years, three years, we want to be a national-level retailer. But only one or two stores there to test the water, check the local trend, and strengthen our model in that particular state, and then we’ll expand in that state. But I think around 80%, 85% will be in existing clusters and states that we are present in.
Tejash Shah
Got it. And the last one, if I may. Usually, what is the thumb rule that we should work with, let’s say, for 50 more stores, how much of DC area you will need to add, or really need a separate altogether a new warehouse to fund — to support this expansion?
Akash Agarwal
So the figure is around like 15% you always need as a warehouse space of your total retail area. So if you are opening 50 more stores at 5 lakh square feet, so we would need about 75,000 to 1,00,000 square feet extra for that.
Tejash Shah
Okay. So this will be brownfield, or you will kind of zero down on a new location?
Akash Agarwal
So currently, we are servicing everything for Farooqnagar, so we have taken another DC that can support us for another, I think, 80, 90 stores. So like the kind of expansion plans that we have, maybe in the future, we have regional DC where we have a South DC, East DC, and a North DC.
Tejash Shah
Perfect, perfect. That’s all from my side and Diwali wishes to you and the team. Thanks.
Akash Agarwal
Thank you.
Operator
Thank you. [Operator Instructions] The next question comes from Virendra Bajaj [Phonetic], an individual investor. Please go ahead.
Unidentified Participant
My question is already answered by [Indecipherable]
Operator
Thank you. We’ll move on to the next question. The next question comes from Rahul M, a retail investor. Please go ahead. Rahul, your line is unmuted. Please proceed with your question.
Unidentified Participant
Yeah. Am I audible?
Operator
Yes, sir, please go ahead.
Unidentified Participant
Yeah. So congrats on a great set of numbers. I had a couple of questions. First is around V2 Smart Manufacturing, the subsidiary that you have. So I think in the last call, you had mentioned that there is a 10% to 15% cost advantage that you get for the apparel, which is manufactured in-house versus what you source. So I was wondering whether there is any plan to expand the capacity of that subsidiary. Or if it doesn’t make much business sense whether you are going to have it off and free up some capital?
Akash Agarwal
So plan is to expand the manufacturing facility and the whole idea behind it was to get the kind of efficiency where we can negotiate with our vendors better. So now we have transparent costs of making each and every garment and it has really helped us in getting contract manufacturing also done. So now last year, I think our own manufacturing constituted 20%, it’s already down to 15%, and it will keep going down in the future. So we have been able to achieve the goal behind why we opened those. And now we’ve been getting that benefit of cost by showing the kind of efficiency that we show in our own factory and tying up with good manufacturers.
Unidentified Participant
Got it. And another question is that, although the last two years have been amazing from an execution standpoint, but I think almost sky is the limit, right? You also mentioned earlier in the call that 1,000-plus stores can be reached out as well. So as we expand, are there any special initiatives that the company is taking to, let’s say, expand the management capacity or any people or HR practices to bring down the retail store attrition, maybe run a loyalty program for the repeat customers, and so on?
Akash Agarwal
Yeah, so there’s a lot of things always happening and there’s a lot of hiring also happening, there is lot of retention things that have happened. Like I said, there are a lot of retention bonuses also. There is a lot of team building activities, and the kind of training and the career paths that we have in our company, I think that is why it’s one of the best in the industry because we have a lot of examples where the salesperson sees that like our retail head was a salesperson, and he started from this low level and now he’s a retail head. So there are a lot of examples within the company that motivates others in a way that they see that they can have a similar career path because there are a lot of internal appraisals that happen. And I think that’s good for any company.
Unidentified Participant
Okay, thanks a lot. And have a great Diwali. All the best.
Akash Agarwal
Thank you.
Operator
Thank you. The next question comes from Shreyansh Jain from Swan Investments. Please go ahead.
Shreyansh Jain
Hello, Akash. Great set of numbers. Congratulations on that. You mentioned that your cost per square foot is about INR200 a month. Now if I were to think about the total store area at the end of FY25, so my sense is we’ll end at about 18 lakh square feet, right? And if I take INR1,000 square foot of sales, so we’ll do about INR1,800-odd crores. And like we’re saying we do gross margins of 25%. So I’m just trying to understand when you are saying INR120 crores of EBIDTA for the year, the math doesn’t add up because you do INR200 a square foot. So that is INR2,400 cost, right, INR2,400 per square foot into 12, probably right, so 8 lakh to 18 lakh square feet. So that’s about INR430 crores of cost, and you’re going to do a gross margin of about INR450 crores, INR500 crores. So you actually end up with about 3% to 4% EBITDA margin. So I’m just trying to understand where — how are we getting INR120 crores of EBIDTA? Just if you can help me understand.
Akash Agarwal
Yeah, because the gross margin that you’re taking is 25%, whereas the actual gross margin is 28%. That’s where the error is.
Shreyansh Jain
But you also mentioned that Q2 and Q4 is slightly weaker for you. So blended, you think you can end the year at 28%?
Akash Agarwal
Yes. Q3 is good. Q3 is usually 30% gross margin.
Shreyansh Jain
Okay. So — and in this INR200 square foot a month, you don’t see any — so this is after considering inflation and new store expenses and all of that?
Akash Agarwal
Yeah. As we open stores, it should come down to INR190 because we’ll be leveraging, like I said, there’s a lot of hiring that has already happened as the head office and the store level in order to service the new stores. So once we open these 50 stores, I think this number should come down to INR190.
Shreyansh Jain
Okay. And this INR190, what is your guidance for the next two years to three years, say, what kind of leverage do we have in this number?
Akash Agarwal
I think it should remain at INR190. So whatever leverage or whatever inflation we get will be set off with the leverage of additional area.
Shreyansh Jain
Okay. Okay. All right. Thank you. Thanks a lot and all the best.
Akash Agarwal
Thank you.
Operator
Thank you. The next question comes from Nitesh Kumar, who is an individual investor. Please go ahead. Mr. Kumar, your line is unmuted. Please proceed with your question.
Unidentified Participant
Yes. Am I audible to you?
Operator
Yes.
Akash Agarwal
You need to speak a little louder, sir.
Unidentified Participant
Okay. Yeah. Thank you for giving me the opportunity and congratulations to the management on the good set of numbers. My question is for the employment front, like employment generation. Could you give me an average number of person employed on a single store?
Akash Agarwal
It’s about 35 people per store, 10,000 square feet.
Unidentified Participant
Okay, 10,000 square feet and 35 number of people. And what is the approach of management like increasing the employment of — in a single store or like automation in near future?
Akash Agarwal
I don’t understand your question, sorry.
Unidentified Participant
Like management approach for increasing the number of employees or decreasing in near future.
Akash Agarwal
So I think we have been very efficient and we are focused on creating a process at the store level where we don’t need a lot of salespeople at the floor to attend to the customer because now each and every garment in our store is like hanging. So there’s no stacking at the store where you need staff in order to set the garment back. So that is why we’ve been able to run such big stores with only 30, 35 manpower and I think it’s essential manpower only now, which is cashiers and the guard and the housekeeping. So I don’t think there’s scope to reduce this further.
Unidentified Participant
Okay, got it. Thank you. Thanks a lot and all the best for the festive reason.
Akash Agarwal
Thank you.
Operator
Thank you. The next question comes from Semanto Saini [Phonetic], an individual investor. Please go ahead.
Unidentified Participant
Yeah, hi, thanks for providing the opportunity. So I just wanted to know that can you share the cost spend on advertisement for this quarter? Are we sharing that?
Akash Agarwal
The cost of advertisement would be less than, I would say, 0.5%. But when I say marketing costs, so we give a lot of gifts to customers, whereas we have a lot of billbusters running at the store level where we — for example, we were giving a bedsheet only for INR99. And that the sheet costs us almost INR160, INR170. So we tell the customer that if you buy for more than INR1,500 or INR2,000, then you can get a bedsheet at that price where the market price of that bedsheet would be INR300, INR400. So instead of advertising costs, it’s a lot of marketing cost in terms of kind and gifts to customers. So that would be about 1.5%.
Unidentified Participant
Okay. And with the increase in the competition, so how are you seeing the marketing cost or the advertisement cost to — like it to be the same in the coming quarters? Or would it increase? And by how many basis points, if you can clarify that?
Akash Agarwal
It should be the same. I think because, like I said, our markup is only 55%. We’re already giving a lot of value to the customer, and we are passing on a lot of benefit to the customer and the customer sees that. So our product is our brand ambassador, and that’s the best marketing tool, the kind of variety and the assortment we sell and the price that we sell at. So our marketing costs will always be around 1.5%, including the gifts and the offers that we give at the stores.
Unidentified Participant
Okay. And what is the average cost of store — opening a new store?
Akash Agarwal
The capex required is INR1,000 per square feet. So for a 10,000 square feet store, it’s INR1 crore.
Unidentified Participant
Okay. And what would be the average square feet size for a showroom?
Akash Agarwal
Average what?
Unidentified Participant
Square feet, like what would be the size of a showroom?
Akash Agarwal
Average store size is 10,000 square feet.
Unidentified Participant
Okay. Okay, yeah. Thank you, and all the best.
Akash Agarwal
Thank you.
Operator
Thank you. The next question comes from Abhishek from ABC Capital. Please go ahead.
Unidentified Participant
Hello. Am I audible?
Akash Agarwal
Yes, sir.
Unidentified Participant
Can you — what kind of PAT number are we targeting internally this year?
Akash Agarwal
PAT?
Unidentified Participant
Yes.
Akash Agarwal
So we targeted EBIDTA — pre-Ind AS EBIDTA of INR120 crores. So I think PAT is 55% of that. So it should be about INR60 crores, INR65 crores.
Unidentified Participant
Okay. Okay, thanks.
Akash Agarwal
Yeah.
Operator
Abhishek sir, you have any further questions?
Unidentified Participant
No, thank you.
Operator
Thank you. The next question is from Paramjit [Phonetic] Singh, an individual investor. Please go ahead.
Unidentified Participant
Yep. Mr. Akash, I am a pretty old shareholder. I want to understand, if you open a store now, how long does it take to reach per square feet sales of INR1,000 vis-a-vis the situation two years ago?
Akash Agarwal
So two years back, our company average was INR680 and new stores did INR550 to INR600 per square feet per month. And now the company average is more than INR1,000. And new stores, the base is around INR900 per square feet. And historically, we’ve seen it takes about 18 months to 24 months for a store to mature. So when we see the cohort, we see that the stores that we opened in the last three years are growing at a faster rate than the mature stores. So it takes about two years for them to come close to the old stores.
Unidentified Participant
So you mean if you open a store now, it will take two years to give you a per square feet sales of INR1,000 per month?
Akash Agarwal
No. What I mean is, so going forward, like I said, so this year, we will do more than INR1,000. And going forward, next two years, our target is INR1,200 per month per square feet sale. So the maturity period is two years. It depends on the company base. So when the company base becomes INR1,200, then it will take two years for those new stores to do INR1,200. But now the stores that we opened two years back, they have reached to INR1,000 after two years, this year.
Unidentified Participant
Okay, okay. Got it. And one more question from my side. I want to understand, do you have any plans for, let’s say, fundraise, QIP? I mean your competitor, Zudio, opens 200 stores every year, last fiscal year and maybe this fiscal year as well. So if you have everything set, processes defined, ground work done over the last four years, why not accelerate more and open 200 stores in a year with QIP fundraise and all that? Is — are you thinking on those lines?
Akash Agarwal
No, we’re not thinking on those lines because, of course, like when you grow at that pace, it comes with an added bit of risk. And we feel we have only implemented maybe 20%, 25% of the vision that we have for our assortment. This is just the beginning. So I think if we reach that magic number of INR1,200 per square feet per month and ROE of 25%, then we might think about those lines that currently, we feel we’re still undervalued. And so, I think maybe in a couple of years, this would change.
Unidentified Participant
Okay. And one more thing. One of your competitors also got into beauty segment, right? I mean, Zudio, beauty and all they have opened. So in the longer term, do you see this value-conscious market will also expand for you beyond apparels and maybe some more categories as well? How do you foresee future for the V2 Retail?
Akash Agarwal
See, we can’t predict the future, but right now, we don’t have any plans to dilute our focus in any other category or even premiumization or any other brand. We want to focus on this, increase the footprint because there’s immense potential just in this model. Maybe in the future, we see when we feel, okay, this is getting saturated and we have the bandwidth to expand into other categories or models, we would think about it. But right now, there are no plans.
Unidentified Participant
Okay, got it. Thank you and Diwali greetings to you and the team.
Akash Agarwal
Thank you.
Operator
Thank you. The next question is from Akash [Phonetic] Singh, an individual investor. Please go ahead. Mr. Singh, your line is unmuted. Please proceed with your question. As there is no response from the line of current participant, we will move on to our next question. Our next question is from Kushal Goenka [Phonetic], an individual investor. Please go ahead.
Unidentified Participant
Hi, thank you so much for the opportunity. Sir, what kind of post-Ind AS EBIDTA number that we are looking for FY25?
Akash Agarwal
We don’t look at — even the projection that we make, we don’t do post-Ind AS because pre-Ind AS only makes sense to us. So, even the investors and internal targets, everything is pre-Ind AS, all the reports are pre-Ind AS. So we don’t like — we don’t even make the numbers for post-Ind AS.
Unidentified Participant
Okay. Thank you, And second question would be, since Q2, do you think from next year, like FY26, Q2, we can see a positive PAT because since we are growing and if we get the operating leverage? So can we see a positive PAT from Q2 next year?
Akash Agarwal
Yeah, definitely, it can be. But the first target was to be EBIDTA positive for all four quarters, which we will achieve this year. But then the next target would be PAT positive in all the four quarters. So hopefully by next year, we can do that as well.
Unidentified Participant
Okay. Okay, that’s great. Thank you so much and best of luck.
Akash Agarwal
Thank you.
Operator
Thank you. The next question is from Manav, an individual investor. Please go ahead.
Unidentified Participant
Sir, can you give the store addition for the H2. How much we are going to add in the H2 of this year?
Akash Agarwal
So I think I already mentioned it, we would add around 40 stores in H2.
Unidentified Participant
And sir, can you give the sales growth guidance and same-store sales growth guidance for this year?
Akash Agarwal
So first six months, it was 34%. And I think for H2, our target is around 15% to 20%.
Unidentified Participant
Okay, sir. Thank you.
Operator
Thank you. The next question comes from Bhagyavanth [Phonetic] Reddy, an individual investor. Please go ahead.
Unidentified Participant
Yeah, hi. Am I audible?
Operator
Yes, sir.
Akash Agarwal
Yes, sir.
Unidentified Participant
Yeah. Sir, I just wanted to know the current ratio of stores that are profitable and that are burning. So how many stores are profitable and how many are in loss right now?
Akash Agarwal
So we don’t have a single store right now, which is in loss. I think it’s the first time in the company history.
Unidentified Participant
Okay. That’s great. That’s great. And I had another question on our manufacturing. All our manufacturing is done in India or some part of it is overseas?
Akash Agarwal
It’s a very insignificant amount, most of it is from India.
Unidentified Participant
Okay, okay. Yeah. Thank you, sir. Happy Diwali.
Akash Agarwal
Yeah. But we are exploring Bangladesh as an alternate.
Unidentified Participant
Okay. Okay.
Operator
Thank you. The next question is from Vinayak Kariwal from Xponent Tribe. Please go ahead.
Vinayak Kariwal
Hi, sir. Thank you for the opportunity. And sir, you mentioned that you were basically doing commodities in ’18 and ’19 and now you have focused on your brand identity. So I wanted to know what is the unique selling proposition. So if you imagine a style bazaar or various other value retailers compared to a V2 standing there. What will the customer — why will the customer enter a V2 and not the other players? Will it be the unique pricing or the product or the store experience. So what’s the focus and USP there?
Akash Agarwal
Yeah. So historically, people used to follow brands or buy a brand because they found something different or they found the latest trends or whatever that celebrity is wearing or whatever the fashion influencers are wearing, they always found that product in that brand. And that’s why they were willing to pay higher for that particular assortment. But now, like I said, because of fast fashion and because now the cost of making the garment is not a lot, but the brand markup is almost 500% to 600%. So we want to bridge that gap where our markup is only 155%. So the cost to MRP multiple is — there’s a huge difference. So we were just taking our feedback from our customers and one of the customers said, okay, I bought a Levi’s T-shirt for INR2,200, and I’m getting a better T-shirt in V2 for INR300.
So when people thought about brands earlier, they thought okay, because it’s at a higher price, it means it is a better product, which is not true. It is a higher price because it has a higher markup. So when you say why would the customer walk into V2 because they will be able to find the latest fashion, the best fabrics, the best colors, the best fit and they would get that product at a 55% markup. So that’s the unique selling proposition or that’s the value proposition. But like I said, we’ve only been able to implement maybe 20%, 25% of the product assortment that we want to have. And the day we reach 100%, I think, like I said, the sky is the limit, and it will be amazing whoever is able to do that actually in India.
Vinayak Kariwal
Okay, sir. So you think if a store near you could do a lesser markup or provide a higher value proposition, maybe your competitive advantages would suffer?
Akash Agarwal
So it’s not just about the markup. Like I said, again, it’s assortment as well. Everyone can sell at a lower price, but you cannot talk about assortment in words. If you actually visit a store versus our competitors, then you see the difference and numbers say and numbers talk. So everyone can say that their assortment is better than the other. But at the end of the day, the customer will decide. And like Zudio has N number of competitors from Aditya Birla, Style Up, there’s Style Union. There are N number of competitors. But if you walk into Zudio, they always have 5 times the customers than any other closest competitor.
So until unless you visit the store and see the product, it’s very hard to put into words that what the customer is getting different because it’s not like they have different margin strategies or Zudio is selling at a much lower price than its competitors. But it’s the assortment — the kind of, like I said, four attributes of a product, you have to get all four correct, and you have to do that for 3,200 designs. So at any given point of time at any of our stores, there are 3,200 designs or 3,200 SKUs. So it’s all about the assortment.
Vinayak Kariwal
Okay, sir. Thank you.
Operator
Thank you. Ladies and gentlemen, we would take that as a last question for today. I would now like to hand the conference over to Mr. Akash Agarwal for closing comments.
Akash Agarwal
Thank you, everyone, for joining on the call. We hope we’ve been able to answer your queries. For any further information, we request you to get in touch with Marathon Capital, our Investor Relations adviser. Wish you all a very happy Diwali and New Year. Thank you.
Operator
[Operator Closing Remarks]