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V-Mart Retail Ltd.

BSE: 534976 | NSE: VMART |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE665J01013 | SECTOR: Retail

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Annual Report

For Year :
2018 2017 2016 2015 2014

Chairman's Speech

Dear Shareholder’s

Just consider: India is the second largest market in the world by population, the fastest growing major economy, one of the most underconsumed population clusters and organised retail accounting for only about 7 per cent of the Indian retail sector.

At a time when the Indian government is formalising the economy through the implementation of the Goods & Services Tax, we believe that the Indian retail sector is at an inflection point. We stand to benefit as a result: apparel with a sticker price of less than RS.1,000 is attracting the lowest tax slab of 5 per cent and around 85 per cent of our revenues are from products priced at RS.1,000 or lower.

We also believe that tax rates and statutes will now work more in favour of the organised retail sector, narrowing a legacy cost disadvantage that this segment suffered against unorganisec competitors. The result is that the country’s organised sector will emerge increasingly competitive, translating into accelerated growth across the foreseeable future.

In addition to GST, we believe an increase in Minimum Support Prices for crops, a growing government focus on agriculture, stable monsoons, the government focusing on public health cover (expected to translate into higher disposable incomes), stronger consumption thrust and job creation at the grassroots are factors that couIc drive retail consumption.

This is only one side of the unfolding Indian retail story, I believe that something fascinating is underway in India even as you read: a convergence of diverse realities is providing the fuel for the Great Indian Retail Revolution. Until a decade ago, most Indians were largely exposed to the electronic media (television) and we believed that this singular influence was transforming our consumption appetite.

In the last few years, a new media has emerged: the smartphone. The smartphone has connected completely disparate population clusters to new fashion trends; what was worn on the ramp in Milan can be seamlessly accessed by someone in Dhanbad; an actor’s wardrobe in one country becomes the talk of the world through social media within hours. There is good reason to believe that television is now only a poor cousin when it comes to influencing consumer behaviour. The smartphone is no longer a window through which one can see what is happening the world over; it is also the gateway through which consumers may transact and buy with the click of a few buttons. With technology emerging as the influencer cum merchandiser, the retail sector addresses a dynamic reality with far-reaching ripples.

In such a scenario, it wouIc be reasonable to believe that the smartphone (with its complement of appetite-creators like the social media and the appetite-satiators like product providers) would address relatively consumed markets, which means their influence would help widen the market and then make it possible for the really nimble to account for a sizable share.

But what of a market that has not yet been penetrated? What about geographies where organised retail is yet to reach? What about nonmetro markets yet to be exposed to the complement of wide choice, prudent merchandising, attractive pricing and loyalty incentives? This is not a market to be overlooked: this is possibly the largest retail opportunity in the world, addressing a sizable population of more than 1000 mn people in a single country; this is where out of 5000 towns across the national landscape, only about 500 have been touched by the power of organised retail. Given this reality, the question is not how much the market can grow to support organised retail growth but how much organisec retail can grow to address the vast national potential.

At V-Mart we believe that this observation goes deeper than what one would expect. In the retail sector, growth is a given: for the simple reason that the larger the volume being marketed, the stronger the negotiation for lower prices, which in turn could help widen the market and increase consumption.

In view of this, there is a premium on the ability to keep riding this virtuous cycle, a premium reflected in a robust Balance Sheet, relative under-borrowing, growing footprint, informed understanding of what sells fastest, ability to rotate inventory faster and enhance overall margins/ surpluses available for reinvestment into more outlets - to keep the virtuous engine ignited.

Having spelt out what it takes tc be sustainably successful, it wouId now be relevant to indicate how V-Mart measures up.

At V-Mart, it’s all about creation of value. Value creation at V-Mart happens due to constant efforts towards building stronger capabilities, gaining a competitive edge over peers and consistency in our growth strategies. Due to this zest, we have outperformed the long-term sectoral growth curve and created value not just internally but also for our end beneficiaries - our shareholders.

In the five years ending 2017-18, V-Mart grew from 89 stores to 171 stores, strengthened revenues from RS.5,750 million to RS.12,224 million and increased profit after tax from RS.252 million to RS.777 million.

During the last financial year V-Mart reported attractive growth: revenues grew 22 per cent, profit after tax strengthened 77 per cent and EBIDTA margin climbed 233 bps to 2 per cent.

In the organised retail sector god lies in the fine print. And so it is in the quality of our business as well: revenue per sq ft increased 3 per cent, inventory turns remained constant, same-store revenue growth 8.9 per cent and the volume increased by 24 per cent.

The operational efficiency translated into financial muscle: we are debt-free, the cash profit of RS.1,024 million (before tax) return on employed capital was 35.3 per cent. These numbers indicate an organisational maturing, where even fleeting erraticity has been replaced by the smoothness of the business engine and revenue/profit predictability

At V-Mart the priority is to protect this operational engine - where all numbers need to be in sync -through prudent de-risking. We will follow a conscious approach, we will grow stores only in Tier 2, 3 and 4 locations, we will commission stores only in pockets where we can breakeven by the end of the first quarter of launch and be net-positive starting the first year, we will commission only as many stores as we can func with internal accruals and we will close stores that under-perform our desired profitability It wouIc be tempting to grow the fastest in response to the prevailing potential by loading debt on our books but: it is a temptation we intend to avoid.

At V-Mart, we believe that the larger the scale, the greater the competence needed to sustain it.

In view of this, we invested broadly across three areas: building people capabilities, increasing technology investments and systemising better processes.

We truly believe our human capital is what brings the Company alive. During the year under review, we were able to retain hardworking people, keep our staff motivated and also recruit young talent to further our growth story

We accelerated store rollout; the 31 stores that were commissioned during the year under review were the largest in any single year in our existence. These stores give us a platform to reach our customers, which is not available in the digital world. We strengthened our brand around a superior price-value proposition and invested in trend analytics, using that understanding to strengthen our product mix. The Company had a strong team that worked throughout the season to provide the latest fashion apparel to customers and meet the needs of the current generation. We invested in digitalisation. The store layout and ambience was improved and visual merchandising was enhanced. The Company launched successful marketing campaigns and consolidated the number of vendors in return for lower costs. Investments were made in warehouse automation. We widened our operating footprint (entering Tier 4 locations) and strengthened our supply chain to make it faster and more flexible through investments in technologies such as INFOR. We introduced Manthan software for advanced analytics leveraging data and support for more informed operations. For better planning we have introduced Darwin.

These are the ways in which we proactively analysed and met the needs of our customers and delivered their expectations. Our company also progressed in offering private labels such as Be Princess, Flick, Desi Mix and Twist etc. to cater to the various needs of our customers.

We acted as both buyers and sellers, sourcing from one market and selling that merchandise in others. With our motto of value retailing, we look towards creating large-scale demand for sustainable merchandise and bring about a transformation in the nation’s fashion industry

We finished the year stronger more optimistic of prospects and more confident of addressing the future.

We are optimistic of increased revenues, profitable growth; store rollout funded through our earnings, deeper technology cum people investments as well as disruptive growth in the areas of our presence.

We plan to bring in diversity and transparency in doing business, which will create value for our shareholders and help us build an even stronger company

Lalit Agarwal