VMART RETAIL LTD (VMART) Q2 FY23 Earnings ConCall Transcript

VMART RETAIL LTD (NSE:VMART) Q2 FY23 earnings concall dated Nov. 14, 2022

Corporate Participants:

Lalit Agarwal — Managing Director

Anand Agarwal — Chief Financial Officer

Analysts:

Himanshu Shah — Dolat Capital — Analyst

Percy Panthaki — IIFL Securities — Analyst

Avi Mehta — Macquarie Capital — Analyst

Tejas Shah — Spark Capital — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Unidentified Participant — — Analyst

Rakesh Agarwal — Monarch Networth Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the V-Mart Retail Q2 FY ’23 Results Conference Call hosted by Dolat Capital. As a reminder, all participant lines will be in a listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions)

I now hand the conference over to Mr. Himanshu Shah from Dolat capital. Thank you, and over to you, Mr. Shah.

Himanshu Shah — Dolat Capital — Analyst

Thank you, Tanvi. Good afternoon, everyone. On behalf of Dolat Capital, we welcome you to Q2 FY ’23 Earnings Conference Call of V-Mart Retail Limited. On the call we have with us Mr. Lalit Agarwal, Managing Director; and Mr. Anand Agarwal, CFO of the company. We will have this call for 45 minutes and would request participants to restrict themselves to two questions per participant.

Let me now hand over the floor to Mr. Lalit Agarwal, Managing Director, for his opening remarks. Thanks, and over to you, Lalit ji.

Lalit Agarwal — Managing Director

Hi, good morning. Good afternoon, everyone now. So this is once again a good time, I would say, because we are definitely the business and the economy is coming back and the market — the environment seems to create positivity. Still there are lot of areas where we keep seeing the risks getting emerged, right, from the geopolitical situations to the trade situations globally. There are multiple areas of global concerns which are coming and we all know that. And so, we are also trying to understand all of those. But, yes, (inaudible) seems to be doing good, the Indian economy seems to be doing good and futuristically we are rightly taking those steps. Definitely, monsoon has been okay, but yeah, the late rains have also deteriorated the situation in the rural land the later — into the October. So lot of crops maybe also got damaged because of that. There has been some pain in the upper belt, especially Uttar Pradesh, Uttarakhand, Bihar, some of those areas where we saw these non-timely rains actually have created lot of panic in the farmers.

So there are those situations in the rural side. We saw certain part of Eastern Uttar Pradesh being completely flooded in the month of October. And there was a real challenge in people’s movement for 15 days of October. So there are some of these situations which are hindering the common man. But otherwise, I think, overall they are talking about the economic growth, the factories coming in, the strength of the government which we are bringing in — bringing international industries into India. I think all of this is definitely moving the confidence in the consumer — confidence of the citizens of India. That will definitely add more value and that will definitely add per capita income as well.

As of now, I think in the retail market, market seems to be good. Most of the retailers who operate in the bigger cities and then towns, because last year was — last year, if you remember, the ’21-’22 second quarter what was a low quarter for most of the people who used to operate in metros. So on that base, people are excited and there is a good growth that is being seen. And largely the market has grown. Both, if I look at the rural India and the urban area, India market has definitely grown. Still there is a pressure on the common man which continues as we have spoken earlier. We continue to see those pressures there; vegetable prices, pulses still are of very high prices. So I think — buy, yeah, it’s stepping down, it’s tapering down and we are able to see the acceptance level also coming in from the consumer. So consumer is also now able to understand that yeah, this is something which is going to go on and this is a new price that they accepted is going to come in.

So I think largely retailers had been doing okay. In our space, what we have seen definitely, the bigger conglomerates, the larger retailers, they have all tried to expand. They have all expanded as well. And we have seen mixed response from them. Some of them have reported good numbers on the back of 2022. But, yes, some have — still are able to — have a muted growth or have a negative growth. So I think it’s a mixed reaction. All the retailers who are working with the common man, with the mass audience, is able to feel the pressure. But, yeah, feel the pressure from the pre-COVID but if I look at the last year, ’21-’22, which was also a good quarter for us and for this particular kind of retailer, I think we’ve got — we’ve been able to better, we’ve been able to — seen a good growth from there.

And I think all the areas of work that V-Mart is doing and what we are focusing on, I think, that is definitely going to make us more better because right from our focus towards the whole supply chain, which is — and the compete sourcing piece, which is the product designing piece, product souring piece, fashion understanding piece, I think those are the areas which we are very actively focusing on. I had spoken also earlier that we have brought in a consultant on that area. They are guiding us on the future strategy, on the future work.

So we are definitely working a lot of areas. We have divided our merchandising team into two — we splitted into three parts which is designing, buying, and sourcing which we earlier had a group of one people. So I think we have done some bit of that. So lot of work is happening on that. Lot of work is happening on the cost management, on innovation, on the design centering, how do we bring in a little more trendier — become little more trendier in terms of our fashion, how do we become a little more efficient in terms of our cost parameters, because the inflation continued. Definitely we have seen a reduction in the cotton prices in the last two months, one and a half month, I will say, that cotton prices have started tapering down, which is a good news, which is a good news, but yes, still the crude prices are up. The prices of cotton still are way above the pre-COVID levels. But yeah, the peak has come down by 30% is what we see. So that effect should be visualized in the next season, which is the spring-summer season, we should be able to further reduce the prices in the spring-summer for the consumer.

This particular season which is going on, the autumn-winter season, we have taken a very, very strong view over the price. We actually managed our price very well and we have brought down the prices, which is these average cost price, as well as the average selling prices for the consumer, and that should also bring in a good result. Largely, winter seems to be little dull right now. The winter season till now doesn’t — didn’t — we didn’t see too much of — we didn’t see too much of temperature going down. But yeah, I think it will be okay going forward. We should — this is definitely early time, but yeah, given the marriage season, for the past 15 days is very low, post Diwali. But after that there are lot of marriages which is going to come in. And we will definitely — we have seen very good attraction of the winter wear range that we launched. And we did a little early launch this time. And we got a very good benefit of that early launch because the culture the fashion trend of the hoodies and the sweat shirts are very good, so that we have captured on those trends. And we definitely feel that that particular area of product line is a big expertise of V-Mart and that makes V-Mart stand apart from the normal retailers and then all the retailers who are there in the market, whether they are national retailers or they are local retailers, our range of winter wear, our pre-winter range definitely has made us stand apart.

I think we’ve been actively working on the digital side. We’ve seen very good growth on that side, both from the marketplace — our acceptance on the marketplace, right, on Myntra as well as Flipkart has been very good. And we have seen a very good growth on those areas. We have almost 100% on marketplace business operations in this particular quarter and which had been muted [ph]. I think we are getting muted response, but now with our new addition of our own portal, we will definitely want to focus more on. We just concluded the closing on the 11th. And I think now we will focus on bringing the business back first on the Limeroad piece, how do we, first of all, get that business back. There are lot of broken pieces or processes because of the cash flow crunch that they had. We’ll focus on improving and bringing them back in the first 90 days, so that the features are on track. And then our focus will be largely on integrating and bringing their unique [ph] culture into the system, how do we create technology, develop technology, and then how do we integrate the two customer bases and then take use of those. So we will be able to see some results coming in, in the next year from there.

Yeah, so largely, that’s the idea. Our attention towards the customer lifetime value is very high. We are focusing very highly on the retention of the customer, loyalty of the customer. Our algorithms and our customer retention tools are really working very fine. We have had a lot of result which is something. We saw right from the increase in the average bill size of the customer and also the repeat rate. So our repeat rates have also gone up. And I think that’s something which is going to remain, because as more and more competitors come in, it is more important to protect your existing base and your existing customer and then attract new customers. So that’s how we are also focusing now, more on increasing the customer lifetime value as well as the frequency of the customer visits and the retention rate of the customer. Plus, I think it’s very important for us to keep focusing on bringing the new customers, because there is the new millennial customer which is going to come in into the market and we are definitely working very highly on the complete brand imagery part, the store imagery part, try to improve on all those areas. Our store display, our reserve [ph] merchandise levels have really gone way up. So I think the focus towards the right things, improving those right basis, improving those — all structure sides, how do we focus on those areas, strengthening those zonal structures, strengthening the retail structure that was very important.

Then we are focusing very, very highly on technology, on algorithms, on forecasting, which is also giving us some results. So I think in entirety our focus — entirety — the focus towards the inventory management, the fashion management, and the aging management, and then the look and feel of the stores and giving the customer the look and feel, which is differentiated will definitely bring in lot of results. That should bring in more and more benefit to the future.

And so I think we will definitely keep speaking over this and we will definitely keep working on this. There are lot of areas of focus and lot of areas of, I think, work that is happening in the organization from the futuristic perspective. So we are definitely working on that. It’s on the infrastructure development of our warehouses. We have this new warehouse, which should be coming up in the next four to five months and that should — that is also only available where we will have the only facility, we will have the online processing facility as well. And our Bangalore warehouse, which we acquired from Unlimited, that is also doing very good. So with these two warehouses, we should be able to handle the supply chain very well. We should be able to decrease the time taken on replenishing to the store, we should decrease the time, or even the cost taken to replenish to the store. That’s the motto that we would have.

But anyway this particular quarter, I think we fared fairly okay. In this festival also — it looks like festival is good — is looking good. It is still not the pre-COVID level. But yeah, from the last year level of we look at it, we have grown and we are growing and we are able to see customer coming back. Excitement is there in the customers’ mindset. Still they are struggling with their pocket. So we are not able to see the similar result. But yeah, I think it is improving a lot, most in the Southern India part and the Northern India. Especially in the Southern India, we have seen very good response from the new stores that we opened up. We’ve opened up almost six to seven new stores in Southern India. And most of these new stores are giving us very good confidence, largely in Tier-3 only, and that gives us a very good futuristic understanding of that market and we believe that that market should become a very important market to us and we’ll be able to catch up those markets very fast.

So with that, I think I’ll hand over to Anand. Let him give a little more detail about the quarter’s number. And then I’ll take up your questions. Thank you.

Anand Agarwal — Chief Financial Officer

Thank you very much, Lalit. And good morning everybody. It’s really been an action-filled quarter here with lots of work happening, not only for the festive period, but as we see better signs of recovery in key markets, especially in bigger towns and also aggravated new store openings, slight ease in commodity inflationary pressures, particularly around cotton yarn and — but definitely not last — but not the least, lot of work to get in Limeroad marketplace portal and start a new phase of online-focused growth for the years to come. But, first, let me take you through some of the key highlights from the quarter, and then we can open the house for questions.

So sales for the quarter grew by a healthy 50% year-on-year and also 61% over pre-COVID levels, definitely aided also by the addition of the Unlimited base. Like-to-like sales grew by 10% year-on-year while the ASPs grew by 27%, again, partially also aided by higher price points in South India. For V-Mart, excluding Unlimited, the ASPs grew by 20% year-on-year, which again is a very high number because we had to take in a lot of price increases and that got reflected in the increased price of products.

With 16 new stores in the quarter and two closures, the total store count stood at 405 as of quarter end. We definitely saw a much stronger recovery in Tier 1 markets and also in stores which were in malls in South India versus Tier 2, Tier 3 and Tier 4 towns where footfalls remained under pressure. At an overall level, while footfalls were up by 42% year-on-year, but from a pre-COVID levels and on a like-to-like basis, footfalls were still down by roughly around 29% for V-Mart business. Despite this, the average bill sizes went up by 15%. So what was very clearly evident was that the rich were buying more, or at least people who could afford more were buying more and people who were still impacted by inflationary trends and other impacts were not coming into shop at all. This is a sort of trend that we have seen for the last — major part of the year gone by, with slight improvement in the festive period, but still footfalls remain down if I look at from pre-COVID levels.

Total sales grew by 50%, as I said, and 61% versus pre-COVID. Unlimited with 6 new stores — out of the 16 new stores that we opened, 6 were in South, two in this quarter. It remained a profitable business, continued its profitable journey. The business definitely looks much stronger with the new stores operating at similar or better sales per square feet as compared to the traditional V-Mart business, and that gives us a lot of confidence and improved figure to open more stores in South India which can deliver similar operating metrics with lower rentals and similar operating costs.

We opened three new large stores — large format stores, one in Calcutta, one in Agartala, and one in Orissa. They have a slightly larger FMCG mix, they are all three composite stores, and therefore, our — as an overall business, FMCG share also went up marginally higher. This is for the quarter, I believe, it’s around 11%, 12%. But on a longer run, it should stabilize at around 10% to — 10% or so. There is no change in strategy as far as the business is concerned. We remain very, very focused on fashion value apparel, FMCG being a tactical strategy to be adopted at key locations.

With inflationary headwinds continuing and really no increase in disposable income of the middle class and added pressure due to the deficient monsoons and also in part un-time excess rains in UP and Bihar, the Tier 2, Tier 3 towns in key markets still remain under pressure. But, definitely, the small green shoots of recovery are visible towards the fag end of festival and now also in winters. Definitely, the new products that we have launched pre-winter and a lot of very exciting winter wear is pulling in good numbers and we are seeing good recovery now in the current month.

Coming on the margin side, the gross margins remain quite healthy at 36.3%, which were largely aided by, as in the previous quarters, higher margin throughput from South India business which we have optically kept a little bit higher to manage the higher operating cost. So at an — as an overall mix, South India business contributes roughly 20% to the sales mix, but disproportionately higher gross margin mix in the gross margin table. We also did much lower discounting in end-of-season sales as compared to previous years since we had very healthy inventory. We had been very prudent in buying during the last two years during COVID times and thereby, the aging of our inventory remains very, very healthy, which has also led to slight reduction in the provisioning that we have been — consistently been following — providing for the last many, many years.

Also, we had mentioned in the last couple of calls that we had increased prices because of the expected — continued expectation around cotton yarn price increases, and that also helped in improving the ASPs and therefore the higher realizations at lower discounting. However, also as we mentioned in the last quarter call, we have corrected part of the price increase and the impact of that should get visible in the current quarter, as we also see better cotton yarn pricing coming in from last couple of months. We’ve also done a lot of innovations in the product, also the mix and also the sourcing strategies, which should help improve our inventory position going forward even better, and also the price positioning for the customer even better. On a go-forward basis, the margins should look marginally optically higher than pre-COVID due to the South India mix, but should in the long run stabilize around 34% in the years to come.

On the expenses side, expenses remain definitely under inflationary — largely under inflationary trends. Otherwise, largely expenses remained in line except for a bit of the higher side on the rentals, which again is an optical impact, because last year we had some savings due to COVID impact, which the landlords were able to pass on to us, which discontinued from this year, but otherwise at an overall level expenses remained much in line with previous year trends. Good thing to note also on the rental side was that all the new stores that we have signed in South India are on very similar price targets as that of rest of India. So the rental numbers for the new stores in South are in line with the overall India average, while the legacy stores in South India still remain high and thereby, we still need to keep the margins a tad bit higher to manage the expense pressure.

As a result of better sales, improved gross margins, lower discounting and in-line expenses, the EBITDA increased to 10.6% in this quarter versus 6.1% last year and 3.6% in pre-COVID FY ’20 period. So definitely the performance, definitely on the margin side, definitely is better.

Coming to inventory, slight up-stocking which is in line with previous years for preparation of festive period. At an overall level, inventory actually went up to around INR917 crores, which is the highest that we’ve ever had. But it is a very thought-out strategy. It was a very carefully planned process to make sure that we were adequately prepared for the festive period, which is a very strong quarter for us. On a per-store average basis, the inventory remained at around INR2.3 crores, which is still lower than the pre-COVID levels, around INR2.4 crores or INR2.5 crores per store for the festive period. Since we had been very prudent during COVID periods, there is significantly no old inventory that we have as leftover. So the bulk of the current inventory that we have is for festive period and for winters and remains under control.

Inventory days look optically higher at around 133. We have put in more experiments in South and we continue to run the South stores with slightly larger inventory. We should normalize to around 100 days by year-end if not sooner. At our overall inventory level, also, I think we should normalize in the next three to four months, which is again in line with previous year trends.

Coming on the CapEx side, the CapEx for the quarter was INR51 crores. YTD, we have spent around INR73 crores. These numbers include not only the new store expansion but also the money that we’re spending on the new store — new warehouse rollout, which Lalit also just briefly mentioned a while back. We are targeting to complete the Phase one of our new warehouse by February, March, and that should come in very handy for the future growth projections. On a full year basis, I’m still looking at a CapEx of around INR180 crores, INR190 crores. In addition to this, we should be spending — we’ve already spent around INR36 crores, INR37 crores in closing the Limeroad acquisition, and there will be another INR20 crores, INR30 crores of working capital spend on that account.

On the cash flow side, we’ve been overdrawn for the quarter by roughly around INR100-odd crores, but on a net basis it should be around INR60-odd crores net of investments and cash on book. So cash balance still remains largely in line with what we had planned because of the higher up-stocking of inventory and because of the preparation for the PDC [ph], the festive period, we’ve built in more inventory, we’ve built in more stock and thereby, we had to marginally utilize our working capital limits. The limits that we have are much, much higher. So the cash position remains quite comfortable with no requirement for any more external funding going forward.

Online business, as also Lalit mentioned, I think just the marketplace business has gone up by 100%, but at a overall level, including our own Omni business, it has doubled. But with the new team of Limeroad, which has just recently come on board, it’s a very, very strong team and very — look forward to increasing their contribution in the overall mix of the business and their participation in making V-Mart a very robust and a very strong technology-powered business.

So on the new stores, we’ve opened 16 new stores this year, closed two. South doing quite well, and we remain on target to open at least 55 to 60 stores for the complete year. So that target remains on online, and we should be looking at a healthy rollout in the next quarter as well.

Unlimited business continues to do well. There has been a like-to-like growth versus last year in Unlimited also, which has been I think around 15%, 16%, which is also very heartening. The operating team there is very confident of delivering a much higher throughput and that gives us a lot of confidence that the bet we had taken has — should take off quite well. So with Unlimited and with the newly folded in Limeroad, I think we should have new areas of growth in the coming years and a lot to cheer about in the next quarters.

So that is all from my side on the financials. So I’ll request Himanshu to now open the house for questions and let’s take it from there. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. (Operator Instructions) The first question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.

Percy Panthaki — IIFL Securities — Analyst

Hi, sir. I was just looking at your sales per square feet, so if I look the quarter — first quarter of FY23, basically, and compare it with the first quarter of FY20, so on a 3-year basis, the sales per square feet was down 28%. If I do the same thing now, Q3 FY23 versus — sorry, Q2 FY23 versus Q2 FY20, the sales per square feet is down 10%. So there is a recovery from a minus 28 to a minus 10. So do you see this trajectory continuing and do you think that there is a good probability that in the coming quarter, the Q3 FY23 versus Q3 FY20, we would see that this minus 10 would come down to zero percent?

Lalit Agarwal — Managing Director

Percy, you are somewhere right. And I don’t know how have you calculated, because it’s not — it’s looking that good but it may not be that good because maybe in the last year you would have seen even the Unlimited number, because Unlimited square feet was coming in the end of the quarter, but the sales only — which we accrued in the last year was only for the month of September. But otherwise also, I think our sales per square feet has gone up and has been bettering, both from the existing store as well as the new stores that we’ve opened up. So all the new stores that we have added up in this particular year, the 27 stores that we added up in this particular year — quarter, and then even after that addition [ph] also that we added up, we are able to see good response coming in. Most of the stores have been performing very well, the sales per square feet has also gone up. We also took up, as Anand mentioned, some large properties or some premium properties as well, which also gave us a good sales per square feet. That was the target and that is also something that is coming up. So I think, yeah, what you are asking, that is what we are working for, definitely that is the most important KPI that I hold and my team holds, how do we increase our like-for-like and how do we increase our sales per square feet numbers every year. So that should be coming in.

Percy Panthaki — IIFL Securities — Analyst

So, are you seeing sort of any improvement, either in October or in the first half of November versus what you saw in Q2? Of course, seasonally anyways it would improve, but I’m saying adjusted for seasonality, are you seeing that basically any of the indicators are turning sort of incrementally positive and that whatever recovery is there — I mean, we have been recovering over the last six months but that trajectory is continuing in that same fashion, adjusted for seasonality. Of course, seasonality itself will mean that your Q3 will be better than Q2 but adjusted for seasonality, whatever that gap is there versus what you were three years ago that is (multiple speakers).

Lalit Agarwal — Managing Director

Yeah Percy. So if I speak on this, compared to ’20-’21, then ’21-’22, today, this particular year, this particular festival looks much better and there is lot of strip in the festival period in the timing and the date. So if I look at month-on-month, it will be really different. If I look at period-to-period it is different. So I think what you’re asking, still there are pressures pre-COVID, if I compare it pre-COVID, but yeah post that, definitely, we are seeing incremental sales coming in and every quarter we are seeing betterment happening. And even in this festival, we have seen that betterment continue.

Operator

Thank you. We’ll now move to the next question from the line of Avi Mehta from Macquarie Capital. Please go ahead.

Avi Mehta — Macquarie Capital — Analyst

Yeah, hi, sir. Sir, I just wanted to understand the demand environment a little better. I mean is it that — and not necessarily from the festive period but beyond that. Are you a little more — is the optimism that you would have, is it more linked to the price reduction that we have done which is in your opinion, enough to get consumers coming back to the stores on a steady state basis, or do you think more is needed from an income level?

Lalit Agarwal — Managing Director

So, I think Percy — sorry, Avi, what you’re saying is right, there are both the things happening because we also acted on it, let’s say that we’ve reduced our prices and then that has been taken very nicely. Our range, our product lines has been also very good. And, see, as I said, inflation is still there, the pressure on the consumers are still there, but as I said, the acceptability factor which is a shock till the last two quarters, and now people are somewhere able to digest it that this inflation will remain here, and then we have to now consume. So that is there, but still the challenge on their balance sheet, their Excel, doesn’t match up and we still are having that deficit around that side. So more — that continues and I think — but yeah, the optimism has to be there because we definitely believe that optimism is going to drive growth, and that is how it will happen. Yeah, I think (foreign language).

Avi Mehta — Macquarie Capital — Analyst

Sir, if I were to see simply, it is — we are seeing that there would be some pickup, festive is looking good. But for the real recovery, it might take some time because inflation has to be — people have to cue it in (foreign language) price increase (foreign language) they should see increase in income levels. And that in your opinion is more a few quarters away, is that the right way to see it, sir?

Lalit Agarwal — Managing Director

Yeah, you’re right. I mean, still that income-led consumption is not being seen and that’s what I would not call clearly income, it is largely about income versus expenses and then that arbitrage. So that is not being seen and that definitely could take another two quarters, that’s my expectation. Maybe, last quarter we would see something but yes, it may take another quarter because there are so many things happening on the geopolitical side, we don’t know what comes up next.

Avi Mehta — Macquarie Capital — Analyst

Got it, sir. Sir, in that extent, if I may, would it be fair to say that your focus would be to kind of get Unlimited, because, obviously, South India is doing much better, you’re making lot better margins over there, integration also needs to — needs your focus. That will be the first key step in your kind of segment along with omni, because that also segment is little different versus, say, store addition, the pace, because we’ve been — we have the ability to ramp store additions in existing geographies as well. But you’re probably kind of putting that at the third — second, third step in your focus rather than the first that it’s initially used to be. Is that a right read-through or now sir? I’m kind of — would love to hear your thoughts on that, sir.

Anand Agarwal — Chief Financial Officer

Avi, hi. This Anand. Let me take that. So I think we have our focus in all the three areas. There is no single priority that we just want to put. And at least in the last couple of years, we have strengthened our organization structure to make sure that we are able to diversify and move in these two or three different directions parallely. But yes, there is definitely higher opportunity in South, and the teams in South and the business development teams are taking cognizance of that. So there is a full-pronged effort which is happening around taking that position up very strongly.

Similarly, on the omni side with the acquisition and the fold in of Limeroad, that’s absolutely a new and a separate team which is going to drive that agenda and there will be some amount of involvement, but definitely that team is going to run pretty much independently to drive that agenda. And lastly, but again not the least, the offline business, the V-Mart business — the existing V-Mart business, there is adequate strength that we have built up to keep growing that and find opportunity areas like merchandising, like product, like improvement in design, like improvement in visual merchandising to keep leveraging whenever we are able to see the recovery in consumer traction back in the market.

Operator

Thank you. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital — Analyst

Hi, thanks for the opportunity. First question pertains to our gross margin. Last quarter, self-admittedly we said that we have slightly gone aggressive on pricing and we want to bring it down — gross margin to earlier levels of less than 33, 32. But even this quarter, we have done very well on that count. So how should we think for the rest of the year and the pricing strategy going forward?

Anand Agarwal — Chief Financial Officer

So, Tejas, you’re absolutely right. It’s not like we have always thought of having higher gross margins. But as I explained during my remarks — opening remarks, I think there is definitely a higher mix of gross margins that we are consciously targeting in South India to mitigate the higher operating expenditure. So there will — so historically we have — if you look at the historical V-Mart business, we have hovered around 32% to 33%. Because of the South India mix and because of the higher gross margins that we need to take in from that business, there will be 1%, 1.5% increase that should come in from that business. Plus, optically in this quarter, there is a tactical issue of lower provisioning in this quarter because of the better quality of inventory that we hold. So thereby you are looking at much higher margins, but at a longer business — on a longer scale, we should average around 34%, 34.5%, that is our long-term vision. We do not want to overcharge the customer. We do not want to earn more from the same customer. We want to sell more quantity and increase our rupee margins rather than percentage margins.

Tejas Shah — Spark Capital — Analyst

Very clear. Sir, second question pertains to — in your opening remarks, you spoke about some supply chain or back-end changes that we have done in procurement, so design production and procurement, if I heard correctly. Just wanted to know, are we doing — I’m sure you would have done, but if you can share what changes we would have done on demand sensing part or fashion sensing part, A. And now with online capabilities coming, we will have a lot of data. So what are we planning? Obviously, early stage, but if you can share some thoughts there, how are we planning to convert data into insights and insights into merchandise improvement which we can relate to the customer demand?

Lalit Agarwal — Managing Director

Yeah, definitely, there is lot of opportunity. And as you are speaking, my eyes were also getting lit up. There is so much to now see and so much to understand. I know it is — as I speak, I am actually in London and I am trying to see the markets and spotting the fashion trends and stuff. So there’s a lot of opportunity, which is available for now, as our volume has grown, as our size has grown, as our need for trade [ph] business has grown. So I think we need to definitely keep looking at those trend spots and then we’ll keep looking at those various good models, whether digital, as well as physical, and there is no shortcut to physical. We will need to definitely understand the market, understand the fashion market, the fashion driver market, have those kind of teams who have that eye and ears to try and understand and capture that. And then also have a process, which then takes the mind to market to the shortest period of time and deliver those fashion as quickly possible to the customer, which is important. And as you said, with the online world, especially from Limeroad, we think that particular channel, definitely is the fashion driver, should be the trend driver for us, should also be the channel where we could provide better trend and then — different trends, which is what we call activated fashion, and that’s the model that we would want to build, and the analytics that comes out from there, because they are millennials who are shopping there, so that clearly gives us a very good trend on what is working, what is not working, what is coming up, what is going to work forward.

So I think all of that just gives us large opportunity. And then you are absolutely right, this data is — once again going to help in our insight a lot and lot more for the fashion, as well as the category, plus the fashion, plus the location, which fashion, which location is working really. So lot of things has to be planned. We don’t want to just put too much of pressure immediately on the team, but yeah, there is lot to do going forward.

Tejas Shah — Spark Capital — Analyst

Great. That’s all from my side. And thanks, and all the best.

Operator

Thank you. We’ll move to the next question from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.

Shirish Pardeshi — Centrum Broking — Analyst

Hi, good afternoon, Lalit ji and Anand ji. Thanks for the opportunity. I have two, three questions. The first question is that now we have completed first anniversary of Unlimited stores, which we acquired last year in August, now quantitatively, will you be able to share, give some color, how we should look at this business in terms of strategy, store growth, merchandise, and maybe in terms of some parameters that how we should build in, in our models?

Lalit Agarwal — Managing Director

No, I think, I don’t know about what your model should build in, but yeah, what I see and what I understand, so there are — see, let me be very vulnerable on this, there are areas of most concern and opportunity. We have deteriorated on certain areas which I would say that we have been very strong on. So we are working on all of those. We are trying to better on all of those. There are areas that we were strong on, we really developed those sides, we got those markets, we are getting those customers. So attracting new customer is not always an easy proposition. It is a difficult proposition, because a set of customers which used to come were not enough and we’re really more matured, we wanted a little more millennial customers. So that’s what we’re trying to drive. We are focusing on our basic model, their Tier 3 model has to be improved. Let’s get into those markets, where still customers have not seen those prices and those fashion. So we are working on all of that, we are still learning. A lot of decisions, a lot of opportunities that we got. I think, quantitatively if you speak, I’m not too happy with what we have done till now. We definitely could boast out and say that we have been good. But yes, I think we have not done bad as we could have. So that is a saving side. But yes, going forward, we should be focusing, as Anand said and you all said, that we are focusing more on that particular zone. We are focusing on opening more stores in those particular zones. We will continue the margin arbitrage a little bit till we don’t get (inaudible) number of stores. And our rental model and our cost model doesn’t come to that line. But post that, we would not want those consumers also to charge more. We want to normalize our margins and make like standardized margin across India. That’s the value system that we need to offer to our consumers. And I think that’s the confidence also that we want to develop.

But, yes, largely, if you speak, we could see some growth coming in. And we want to target more, because as Tier 1 stories are also becoming better and mall stories are becoming better. With the acquisition of Limeroad, our trend story will also become better. And then more and more trendiness can lead to more and more betterment in our consumer retention and consumer attraction. So I don’t know, model-wise we will speak separately rather than (technical difficulty).

Shirish Pardeshi — Centrum Broking — Analyst

Lalit ji, that’s very helpful. But just maybe in terms of number, maybe if you can share what is the like-to-like growth or maybe what is the footfall growth for six months, specifically for Unlimited, or maybe if you and share ASP trend, how the trend — is the — growth is happening.

Lalit Agarwal — Managing Director

On the sales, I think we have grown by more than 15% from the last year number if you can see — like-to-like if I see, from quarter two, quarter two. So I think ASP number — ASP must have gone down. I think it has gone down by around 10% to 12%, because we wanted to introduce a low-price point product. So it has gone down, the ASP is going down. Customers have increased — number of customers have increased. Their bill sizes also have — somewhere gone down a little bit, not gone up, come down a little bit, because we can’t — because as our ASP is down, it will go down. But yes, that’s what our motto is, that’s what our goal is and that’s what we will do.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. My second question on V-Mart. We’ve been seeing and reading a lot about UP, Bihar and key markets. So, will you be able to share how this last 45 days, especially Chhath Puja and the strong festivals in Bihar and UP has performed? Though we know that there are main points and you did highlight in the beginning that the consumption — the demand is not there. But just wanted to know — curious if things are stabilizing [ph] — I mean things are moving in a positive direction or still the pinpoints will be seen, because I also gather the winter is setting into some part of North.

Lalit Agarwal — Managing Director

Yeah. So, Shirish, to answer your question, we have seen positive signs and towards the Diwali period, we have definitely seen better signs. And which should continue. But yeah, because our Hindu calendars are a little different and the marriage dates and those are — shifts happen very fast, like right now what we are going through is a period called Tara in the Hindu calendar where there are no marriages happening in the next — normally, post-Diwali, on November end [ph] the marriage starts and then continues till December 15. But this year we don’t have any marriages on those days and marriages will start by November 26. So we got some lull period which could come in, in this time. But yeah, but still I think the business will come in. (Foreign language) the pressure in Bihar continues, even Eastern UP continues, because Eastern UP, as I said, the flooding also impacted a lot to them. So that area still is not under — to good number. North — the other parts of Northern India is doing better rather. Even the Western UP is doing better. So I think we still are having pressure on those numbers compared to pre-COVID level if we talk.

Operator

Thank you. The next question is from the line of Rakesh Badwani [ph] from Monarch Networth Capital. Please go ahead.

Unidentified Participant — — Analyst

Thank you, Lalit ji and team for the opportunity. Sir I have two questions. One is, I want to understand what is your thinking on the revenue per square feet because if I look at the revenue per square feet before COVID, when the V-Mart was running, so it was only around 600 to 700 during non-seasonal [ph] period and during Q3, Q4 it was shooting up to 800 to 900 also. And after like COVID happened, store per — the revenue per square feet went down which is understandable, and Unlimited also happened. And so just wanted to understand what is your thinking on the revenue per square foot, not from the quarter’s perspective, over a period of one year or two year because we have said like we will be maintaining — trying to maintain 10% EBITDA margin. So what kind of revenue per square feet?

And second on the inventory. So you said revenue — inventory per store has come down from INR2.4 crore to INR2.3 crore. And we have mentioned in the call that inventory further will come down. So I just wanted understand how you’re planning to reduce inventories further. These are from — questions from my side. Thank you, sir. Thank you.

Anand Agarwal — Chief Financial Officer

So, Rakesh, on the overall trajectory of sales per square feet or sales growth, I think while it has already been answered, but let me just reiterate. I think we — Percy had the similar question, but let me just reiterate. So at a overall level, there has definitely been some pressure from pre-COVID levels as we have also discussed in the last couple of questions. But if I look at the pre-COVID levels of sales per square feet, we are definitely hopeful and targeting to reach that level in the next couple of — maybe by next financial year definitely. This year definitely looks challenging, given the kind of inflationary trends and the contraction in consumer demand that we have seen so far. But at a — from a future perspective, we are definitely looking to re-align ourselves to that INR700, INR800 per square feet that historically we have always averaged around. So there is no change. There is a macroeconomic situation that we are still trying to get over and it should happen in the next six to 12 months.

On the inventory side, this is a seasonal trend. As I explained that at an average level, typically we hold around INR1.2 crores of inventory per store throughout the year. During the onset of quarter three, which is — also coincides with the festive period, we have to up-stock and that is a trend that we have always maintained for the last many, many years. So there are no major corrective actions that are required, it’s a normal phasing out of winter or festive inventory, which has to happen over the periods of October, November and December, which again happens every year. We have bought most of the inventory that we needed to buy. October, November purchases will see very, very less amount of inventory purchases and automatically the inventory levels should come down, as we are already seeing that they are beginning to come down. So by December end, we should be in a far controlled stage and definitely by the year-end it will come down to absolute normal levels.

Rakesh Agarwal — Monarch Networth Capital — Analyst

Thank you, team.

Operator

Thank you. The next question is from the line of Anuj Sehgal [ph] from Manas Asian Equities Value Fund. Please go ahead.

Unidentified Participant — — Analyst

Hello, can you hear me?

Operator

Yes, we can hear you, please proceed.

Unidentified Participant — — Analyst

Yeah. Lalit ji, I just had two questions. During the call when you did the Limeroad acquisition, you acknowledged that it was challenging and difficult to build the whole in-house piece — build online piece in-house, and therefore you had to pursue the acquisition of Limeroad. So my question is that business is a very different business with heavy discounting and chasing customer growth. So what is — and it requires a different mindset. So what is the level of cash burn that V-Mart is willing to make or take to sort of extract [ph] that business? And related to that, I notice that the net debt on the balance sheet as of end of September is the highest I think since FY15. So how should we think about sources of capital as you pursue growth going forward?

Anand Agarwal — Chief Financial Officer

Yeah, hi, this is Anand. Let me take this. So on the Limeroad side, we had taken up this question actually earlier also and during the Limeroad call. So what we are targeting is to build this business profitably in the coming years. This business already has had very strong historical growth levels and it’s not a very high cash-burn business. So it is not really competing to acquire a lot of customers in the near term. It already has a good base of customers with very good customer retention rates. What we have targeted for ourselves is that we should not be spending more than 15% to 20% of V-Mart’s EBITDA on investment — further investments into the Limeroad business, and the business model or the business plan that we have built for the Limeroad business for the next four years adequately recognizes this concept and we should be looking at a reasonable growth in line with what our expectations are within this number. So there is no over-cash burn or no extra cash that we are looking to burn over and above 15% to 20% of the existing EBITDA that V-Mart is able to earn.

Second question, on your net debt side, yes, there is around INR111 crores of debt that you’re currently seeing on the balance sheet. But if you look at the net of investments, we have around INR40 crores, INR45 crores of cash or cash equivalents sitting on the asset side. So actually the net utilization is only around INR40 cores — INR50-odd crores, which is again in line with the stack-up of inventory that we have had to do for this quarter, and in preparation for the festive period, going forward, we are not foreseeing any significant cash outflows or out-burns. Even as I speak to you, currently our utilization levels are much under control despite paying for the Limeroad acquisition. As also explained earlier, we will be down-stocking our inventory, as is the case every year because for the next three months there’ll be a lot of inventory, which is getting sold but with very minimal amount of purchases, which will happen, thereby further improving the current asset situation, including the cash flows.

Operator

Thank you. That was the last question for today. I now hand the conference over to management for closing comments.

Lalit Agarwal — Managing Director

Thank you everyone. We had been talking quite frequently, and I don’t have too many things to say. We need to perform more, we definitely need to understand more this particular market, this particular consumer and be ready for the future, because the future looks very interesting. The way the world is expecting from India, we should also expect the same from our side of the business, because everything which comes up to India is going to add up to our per capita income of our consumers and then the consumption of the consumers.

So we are definitely on the building-up mode and we will — definitely want to build a very, very strong base, so that we could actually take up the challenging features that are going to come in and then the good future that is going to come in. So, thank you. Thank you and let’s meet often. Bye.

Operator

Thank you very much. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.