spencers retail Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS

(Annexure A to Boards Report)

Spencers Retail Limited (Spencers, SRL or the Company), a part of the RP-Sanjiv Goenka Group (RPSG Group or the Group), is a multi-format Business Retail industry in India. Along with its subsidiaries, the Company operates across various categories such as Staples, Fast-Moving Consumer Goods (FMCG), including food items like beverages, Fruits & Vegetables, Fish & Meat, and Non-Food items such as Fashion, General Merchandise, Personal Care, home essentials, Eiectricai and Eieotronios. The Company has also established a differentiated reoaii through a spatiality section oomprising Spenoers gourmet, patisserie, wine and liquor. Our wholly owned subsidiaries inolude Natures Basket Limited (Natures Basket or NBL), one-stop destination for multi-ouisine oooking needs and . a preferred destination for gourmet & gifting, and Omnipresent Retail India Private Limited (ORIPL) WISKBUl. whioh serves our oustomers via deliveries through online and phone at ohosen geographies.

GLOBAL ECONOMY

The year 2021 was uncertain and had mixed development for the world economy. After a significant drop in 2020, output in several countries rebounded to the pre-pandemic levels in 2021. With this, the global economy witnessed a GDP growth of 6.1% in 2021, driven by commercial development of multiple vaccines, policy support by governments and central banks, alongside higher inoculation to the COVID-19 virus & strains.

International commerce picked up pace from 2021 onwards while many developing countries benefitted from the rise in commodity prices as a result of increased economic activities and consumer demand. The subsequent domestic financial crisis and foreign debt restructurings were less frequent than expected. This resulted in a GDP growth of 6.8% for the emerging economies in 2021, while the advanced economies grew by 5.2%.

Outlook

The global economy adapted to the pandemic-led transformations with economic activities eventually normalising across sectors and countries. Prolonged virus outbreak caused multiple lockdowns throughout 2020 and the first half of 2021 resulting in a halt in the economic activities. The reduction in infection rates and large-scale vaccination coupled with the Governments support and phased open-up across the world propelled the economy to move towards normalcy. All major countries progressively begun to open their borders, allowing for normal trade and travel, promoting growth in both developed and emerging economies. However, the rise in the ongoing geopolitical tensions and further inflationary pressures led by rising crude oil prices have dampened the economic progress. The global GDP is expected to witness a growth of 3.6% in 2022, with Emerging and Developing Asian Markets growing by 5.4%, the US growing by 3.7% and India growing by 7.2% in 2022-23.

INDIAN ECONOMY

The Financial Year 2021-22 was the year of recovery for the Indian economy following the COVID-19 outbreak in 2020. With effects of the pandemic waning out, the eventual resumption of economic activities led to an increase in demand and consumption. However, the economic progress was dampened due to the deadlier second wave of COVID-19 which struck the country in the very first quarter, followed by stark shoot in power and fuel cost, coal shortages, supply chain disruption and longer than expected inflationary pressure. In addition to this, the Russia-Ukraine conflict caused major concern leading to surging crude oil prices, in turn affecting other input costs and higher inflationary pressures. As per the Ministry of Statistics and Programme Implementation (MOSPI), Government of India, the GDP grew by 8.7% in 2021-22 compared to a contraction of 6.6% in 2020-21.

During the previous fiscal year, Government initiatives combined with the Reserve Bank of Indias (RBIs) policies of lowering interest rates and implementing measures for fiscal stimulus aided in facilitating economic stability amid life- threatening challenges. Over 1.8 Billion vaccine doses were successfully administered against the COVID-19 virus, lowering COVID-19 fatalities, infection rates, mobilisation restrictions and resultant supply chain disruptions. Based on these positive transformations, the Indian economy started to reflect a positive growth outlook. (Source: Ministry of Health and Family Welfare, GOI)

As per Economic Survey of India 2021-22, India witnessed a GDP growth of 20.1% in first quarter of 2021-22, owing to higher consumer spending and a low base impact from previous fiscal year. Towards the end of June 2021, the economy witnessed improvement in activities across sectors including auto sales, retail, agricultural production, construction and exports. With business activities rebounding to pre-pandemic levels, the Indian economy experienced a GDP growth of 8.4% in the second quarter of 2021-22. Government consumption was the largest contributor to this recovery, followed by private consumption playing a major role in aiding the same. The Index of Industrial Production (IIP) elements, and the eight-core index rebounded in V-shaped pattern. In April-November 2021, the IIP increased by 17.4% YoY, compared to fall of 15.3% in April-November 2020. Retail inflation, as measured by Consumer Price Index-Combined (CPI-C), declined to 5.2% in 202122 (April-December) from 6.6% in 2020-21. This was primarily attributable to decrease in food inflation. Food inflation, as measured by Consumer Food Price Index (CFPI), was at an all-time low of 2.9% in 2021-22 (April to December), compared to 9.1% the previous year. Wholesale Price Inflation (WPI), however, was running in double-digits. Indias manufacturing activity improved with Purchasing Managers Index (PMI) for manufacturing above 50 in March, 2022.

Outlook

The IMF projects that India is likely to retain its entitlement as the fastest-growing worlds major economy for 2021-24. The Indian economy is expected to witness a GDP growth of 72% in 2022-23. With increased Government spending as announced in Union Budget 2022 and rise in private consumption and investment, economic activity will further boost demand. However, lingering impacts of COVID-19 outbreak, rising inflation, and geopolitical tensions continue to act as potential threats.

 

GDP Growth (At constant prices, in %)

INDIAN RETAIL INDUSTRY

The Indian Retail industry is ranked as the worlds fifth-largest retail destination. According to latest IBEF study, the sector contributes 10% of Indias GDP and employ over 8% of population. It functions around four retail formats namely exclusive branded retail shops, multi-branded retail shops, convergence retail outlets and e-retailers. The competitive landscape in the Indian Retail sector is structured with departmental stores, hypermarkets, supermarkets, cash and carry stores and specialty stores.

The fiscal year 2021, was a year of contrasts for Indias Retail market. According to Bain and Company Report, the Indian Retail industry was worth US$ 810 Billion in 2020-21 - exhibiting a flattish trend compared to 2019-20 due to trade and travel restrictions imposed by the COVID-19-induced lockdowns. With 140 Million online shoppers, India is the third-largest market. However, the market is vastly under-served and Indias large internet user base of 625 to 675 Million people offers further growth prospects. During 2021-22, the overall Retail market shrank by 5%. However, the Indian E-retail market saw a 25% growth despite a two-month national lockdown and multiple prolonged disruptions in regional pockets over the year.

 

(Source: Bain and Company Research)

Outlook

The Indian Retail industry is predicted to witness a CAGR of 8% to 9% from 2020-21 to 2024-25, reaching US$ 1,250 Billion by 2026 primarily owing to hybrid distribution model and OMNI-Channel approach. Customer insights play a major role in driving the new Retail environment. While technology significantly transformed supply chain, production, and retail sales, developing customer insight is vital for retail organisations - whether for service customisation or presence across multiple channels.

 

(Source: Bain and Company Research)

Spencers Take

Spencers established itself as a multi-format modern retailer in Indias Organised Retail market. The Company offers a diverse range of food & non-food items, and a unified shopping experience across Spencers and Natures Basket. With both large format stores in Spencers and small format stores in both Spencers & Natures Basket strives to cater customer demands effectively.

Our Large format stores account for ~73% of total sales & small format stores (including Natures Basket) account for ~27% of total sales. Going ahead, the Companys OMNI-Channel business model is expected to play a major role for driving growth in the Indian Retail industry. The COVID-19-led pandemic accelerated the shift to online sales with people choosing health, safety and convenience over pricing. Retailers were agile in shifting to digital platforms to sell their products and develop capabilities to handle increasing demand for doorstep deliveries.

At Spencers, a capable digital contributes significantly to our online sales. The Companys mobile app and website enable a seamless customer shopping experience. We continue to strengthen our OMNI-Channel distribution along with our brick-and-mortar stores. We pioneered phone and WhatsApp chatbot ordering, and associated with Uber, Swiggy, Dunzo, RWAs, and others in 2020-21 to enhance our Out-Of-Store channel. This enabled Spencers to stay resilient amid challenges, facilitating a revenue growth of 80.4% in 2021-22.

INDIAN ORGANISED RETAIL INDUSTRY

The Indian Retail Sector is largely dominated by traditional retail formats and kirana outlets. However, evolving consumer preferences owing to the pandemic, the domestic Organised Retail sector witnessed a boom. It encompasses selling goods/ merchandise under a single roof in a fixed location, such as departmental store, hypermarket, supermarket and convenience stores. Food & Grocery is a major component of the Indian Organised Retail, followed by other segments including Apparel and Footwear, FMCG and IT, Jewellery and Accessories, Health and Entertainment, among others.

According to CBRE South Asia survey, Indias Organised Retail stock reached 64.3 Million sq ft in the first half of 2021 and is predicted to reach 82 Million sq ft by 2023. With the pandemic receding, accompanied by economic revival owing to over 1.8 Billion vaccinations done in India, retailers experienced higher footfalls across high streets and malls. The evolved consumer behaviour towards conscious buying resulted in a major shift in across both physical retail and e-commerce. During the year, top performers like F&B, E-commerce, Pharmaceuticals, and the traditional grocery retailers witnessed steady growth despite economic disruptions.

With the perception of Indian Retail sector transforming, retailers continue altering their store models to meet the diverse customer demands across markets and geographies. The pandemic prompted retailers to experiment with emerging trends such as expansive and enhanced digitalisation, OMNI-Channel commerce, among others with high-street and shopping centre businesses reviving, merchants are rethinking and realigning their business strategies to suit the demands of customers who are continually exposed to growing online shopping experience.

Despite these developments, the Organised Retail Market share accounted for a mere 18% in 2021. As compared to penetration levels in major economies - for instance, in the USA it is 85% while its 55% in Malaysia - the Indian Organised Retail market is highly under-penetrated. Therefore, the market certainly possesses high untapped potential for Indian companies to expand further into the industry. (Source: Business Standard)

Outlook

The Indian Organised Retail market reflects an optimistic outlook overall, owing to ramped-up vaccination campaign, policy reforms, and rising urbanisation. According to a study by IBEF, the Organised Retail Sector is anticipated to expand at a CAGR of 20% to 25% on a YoY basis. Consumption boom is fostering substantial development in this segment, leading to increased disposable income, focus on hygiene and changing lifestyles. Easy borrowing and usage of Buy Now & Pay Later models. Thereby, contributing significantly to Indias robust and rising consumer culture. Ease and safe financial transactions are facilitating consumer acceptance and higher utilisation e-retail platforms and services. Due to renewed demand and retail activities bouncing back to pre-pandemic levels, a number of international brands both in Retail & F&B sectors are showing interest in countrys retail landscape. Going forward, this would induce further growth in the overall sectors.

Spencers Take

Spencers caters to ~72% of the overall Organised Retail market in India, comprising Food and Grocery, Apparels, General Merchandise, Consumer Durables, Mobile and IT, Furniture and Household items and Footwear. With market penetration of only ~ 5%, the Grocery industry offers significant growth potential for modern trade. Spencers is poised to benefit from these potentials given its capabilities, market understanding and diversified offerings. (Source: CRISIL Research)

Spencers is well-versed in current industry trends and our experience leverages us the ability to continually analyse our stores and drive efficiency, extend consumer base, launch new stores. Further, we have expanded our reach by acquiring Natures Basket Limited which has a prominent presence in western parts of Indian i.e. Mumbai & Pune. During the year, the Company opened four new SRL and four new NBL stores, totaling ~70,000 sq ft. As a part of our ongoing action plan, the Company is focused on a hybrid model of both brick & mortar store and OMNI-Channel distribution. We take utmost care towards maintaining excellent hygiene and cleanliness across our stores - right from the lead up sidewalks, in-store cleanliness, to employee hygiene. Post the COVID-19 outbreak, the Company has been proactively engaged in taking care and ensuring timely & regular sanitisation of stores.

OPPORTUNITIES FOR THE INDIAN ORGANISED RETAIL INDUSTRY

Changing Consumer Preferences

By 2021, the world had already begun to adapt to the pandemic-led new normal. Meanwhile, for consumers, the primary changed from pricing, to shopping in a hygienic and sanitised space. Modern Retail provides a hygienic shopping experience, high-quality packaged products, minimum manual intervention in shopping journey of customer, and competitive pricing. Moreover, most retail chains offered some kind of loyalty points, membership discounts or other lucrative offers to attract and retain customers. All of these factors led to a more expanded customer base backed by their increased preference for the Organised Retail in India.

Spencers Take

Spencers adapted and evolved in providing a shopping experience aligned to the dynamic consumer preferences. We offer a one-stop shop for a wide range of assortments to meet diverse customer requirements, while also offering well- differentiated, unique and diversified private labels under our brand. Spencers provides a superior in-store experience, backed by ambient, weii-iit stores, standardised, scientific store design. This would ensure higher cross-selling, benchmarking methods, pricing competitiveness, exceptional tailored offers, and short queue waiting times.

Under-Penetrated Market

The Indian Organised Retail segment is an under-penetrated space and accounts for a lower share percentage compared to developed and emerging countries. This indicates the tremendous nature of the underlying untapped potential in the segment. Over the last decade, evolving consumption patterns led to increase demand from Tier - 2/3 cities and many others. As a result, these areas appear to be potential for setting up of stores, providing expansion and penetration opportunities to Spencers and other market competitors.

Spencers Take

Spencers is leveraging its wide presence in the Indian markets and open store in under-served locations in line with its profitability and sustainable growth aspects. Thereby, the Company is poised to tap potential opportunities as a result of rise in demand in the industry.

OMNI-Channel Model

Breaking down boundaries between communication channels and providing a single integrated brand experience across multiple touchpoints necessitates the transition from a multi-channel environment to an OMNIchannel ecosystem. Having an OMNI-channel business model is imperative to meet consumers potential needs. With the skills and resources accessible to convenience store merchants, they will be able to efficiently manage and run this channel while being^ closer to and catering to a diverse range of customers. Increased

Spencers Take

Spencers strives to become a fully-integrated OMNIChannel retailer and for this purpose, we chose a hyper local strategy while also contacting clients directly and with contactless delivery via our Out-Of-Store channels to capitalise on the e-commerce. Introduction of new brands, goods, markets, and servicing in other locations, are other factors further providing expansion prospects to the Company, at present.

Demographical Advantage

The changing demographics and subsequent trends are influencing growth prospects in the Organised Retail industry. In India, the changes in the number of middle-class customers implies a steady increase while the nuclear households are predicted to reach around 74% by 2025. Nuclear households spend an average of 30% more per capita than combined families. The ongoing rise in consumer spending is being led by higher demand and disposable income. At present, a large young working population with a median age of 24 years, nuclear families in metropolitan regions, an expanding working- women population, and new possibilities in Service sector are driving the increased demand and supply in the industry.

Spencers Take

With the acquisition of Natures Basket Limited, we have expanded our presence in the western parts of India i.e. in Maharashtra including cities like Mumbai and Pune.

Spencers industry presence and distinction is led by the Companys diverse choice of products at reasonable pricing. Thereon, carving out a niche for the Company with its tagline Makes Fine Living Affordable. The tagline is henceforth, a representation of the Company prioritising consumer satisfaction through high quality products and services that improve fine living at reasonable costs in a welcoming retail atmosphere. The customer has benefited from right pricing and different offers from Spencers and Natures Basket.

Growing Consumption

Growth in household income is likely to transform Indias current position at the bottom-of-the-pyramid in the economy to a truly middie-dass-ied one. This would be driven by an estimated growth in consumer spending, from US$ 1.5 Trillion today to about US$ 6 Trillion by 2030.

(Source: World Economic Forum repot on Future of Consumption in Fast-Growth Consumer Markets: INDIA)

Spencers Take

Changing consumer habits impact organised stores like Spencers and Natures Basket, giving way to several advantageous scenarios to expanded presence across channels and enhance digitalisation.

We expect the footfalls to increase from current levels that wiii benefit us in increasing our sales and wiii also help us to deliver considerable growth.

Hence, Spencers strives to enhance the Companys offerings through sharpening its commutation to assist brand retention and recognition.

Threats

Economic Conditions

Economic slowdowns have a direct influence on consumption, with Retail being the value chains end-service provider of consumption facing the greatest number of challenges. Macroeconomic concerns impacting the overall retail performance include slower GDP growth, diminished market confidence, unforeseen policy adjustments, increased oii costs, and repercussions of the pandemic.

Spencers Take

At Spencers, a strong market foundation, digital capabilities and vast network renders us the capability to sail through uncertainties. Furthermore, with essential goods forming a part of our product portfolio, we are safeguarded from major economic and supply chain disruptions.

Aggressive Expansion

Inadequate research on store expansion and poor customer insight can lead to retailers opening outlets at unfeasible locations. This would result in iow accessibility, visibility, and traffic, affecting the businesss overall operational performance.

Spencers Take

Spencers seeks to establish a presence in areas where retailers may generate more money and attract more customers.

With regards to the existing clusters, the Company is growing its footprint while availing better use of back-end skills by lowering operational and marketing costs. During the year, the Company (Spencers & Natures Basket) opened 8 stores and also has rationalised some unviabie loss making stores. We ensure setting up of the Company stores in feasible areas basis extensive research on aii fronts and thereon, conduct store evaluation on concurrent basis.

Spencers Retail plans to add minimum 1 Lakh to 1.5 Lakh sq.ft. and Natures Basket 10k sq.ft. to 20k sq.ft. per annum.

Price War

With India being an attractive space for Retail market, there is continuous influx of new entrants across the sector, leading to price wars and higher competition. Price wars might be a good way to beat competition and increase sales volume in near term. However, it may have a negative impact on profitability, can cause price erosion and hamper consumer loyalty in long-run.

Spencers Take

Spencers extensive distribution network allows customers to acquire products directly from producers. As a result of elimination of several intermediaries, the Company is able to maintain competitive pricing with wider assortments.

At Spencers, we aim to provide customers an experiential shopping environment with varied assortments at affordable price. Spencers also has an extensive distribution network allows customers to acquire products directly from producers. As a result of elimination of several intermediaries, the Company is able to maintain competitive pricing with wider assortments

INDIAN E-COMMERCE SCENARIO

During the initial two years of the pandemic, companies in India realised the promising aspects of E-commerce and thereon, online channels grew in terms of convenience, automation, and usefulness. Consumers started to prefer virtual purchasing, within the comfort of their homes. India has 140 Million internet shoppers and ranks third, following China and the United States. However, the market is vastly underserved. It offers an immediate opportunity to reach and cater Indias big internet user base of 625 to 675 Million individuals. The pandemic marked a turning point for Indias E-commerce business, resulting in a 12-month increase in e-commerce penetration, which reached 4.6% by the end of 2020-21. This acceleration was much greater across the top eight metro cities, where online shopping is more common one out of every three persons in top eight metro cities shopped online at least once last year, on an average.

The COVID-19-induced E-retail inflection was a global phenomenon driven by increased customer demand for safety and convenience, particularly during extended stay- at-home time phases. In India, e-retailers provided a lifeline for both customers and sellers, allowing millions of people to get vital goods and hygiene items during lockdown while also paving way towards further opportunities for thousands of merchants. The domestic spike in penetration is expected to continue in alignment to eventual market stabilisation similar to the global pattern observed before.

Millions of Indian customers continue to profit from E-commerce, providing ubiquitous access and increased convenience. This has democratised shopping in India by allowing access to over 95% of countrys pin codes. Thereon, giving small sellers and micro-entrepreneurs more leverage, torn down go-to-market obstacles for incumbent and insurgent brands, and created jobs for millions. Following the difficulties created by massive disruption (for consumers and small companies) and job loss, e-commerce has proven to be a benefit during the pandemic.

The E-retail market is predicted to rise to US$ 120 Billion to US$ 140 Billion by 2025-26, growing at a rate of around 25% to 30% YoY basis over the following five years. Smaller towns will drive expansion, accounting for four out of every five new shoppers. Women and elderly consumers, in addition to small towns, have been more prominent in online shopper base in previous year, and this trend is projected to continue.

 

(Source: Bain and Company Research)

According to Redseer, a management consulting firm, Indias Consumables industry would increase at a 6% CAGR over next five years, reaching US$ 1 Trillion by 2025, up from US$ 725 Billion in 2020. Quick commerce (Q-commerce) penetration in the online Consumables industry is expected to expand from 7% to around 12% to 13% by 2025, according to the report. While total Online Consumables market is currently valued at US$ 3.8 Billion, it is expected to double in size by 2025, to US$ 30 Billion, with 50% coming from metro and tier-1 cities. Moreover, quick commerce, valued at US$ 300 Million in 2021, is expected to grow 10 to 15 times in the next five years to US$ 5 Billion by 2025, with 20 Million addressable households.

 

(Source: Phillip Capital Research)

Spencers Gross Merchandise Value increased by 11.75 times in 2021-22 from 2018-19. We began our journey as an ‘OMNI-Channel player a few years ago, serving clients through our shops, e-commerce websites, and mobile application. The pandemic presented a great opportunity for the Company to use the digital platform and expand the ‘OMNI-Channel presence. During the year, the Company increased its expenditures in mobile applications and established the necessary infrastructure. In addition, the Company began accepting orders via WhatsApp chatbot, in addition to the existing digital channels. Spencers was able to expand ‘Out-Of-Store reach as a result of this change. The Company is committed to adapting e-commerce platform in order to expand consumer base.

GROWTH DRIVERS OF E COMMERCE INDUSTRY IN INDIA

Advancements in Technology Adoption

The e-commerce channel has seen fast expansion as a result of increased internet penetration and smartphone usage, more awareness, and changing customer behaviour. In January 2022, India had 658 Million internet users. Between 2021 and 2022, Indias internet users rose by 34 Million +5.4% and by 2025, estimated to be worth US$ 1 Billion.

 

(Source: Data Reportal Research)

According to Deloittes analysis, smartphone demand in India is predicted to record a CAGR of 6% over next six years – from 300 Million in 2016 to 400 Million in 2026. Furthermore, the growing use of smartphones and access to internet via broadband, 4G, and introduction of 5G is predicted to increase the number of online consumers. As a result, the e-commerce customer base is likely to grow in near-term.

Spencers Take

Spencers aims to leverage on the ‘OMNI-Channel network to reach customers directly. Spencers has invested in a touchscreen-driven point-of-sale system to improve customer experience by enabling them to scan available products more quickly. Furthermore, contactless door-step deliveries, paperless e-invoices, and digital payments through third-party payment processors, are all available to Spencers customers.

Shopping Experience

E-commerce ‘humanises the online shopping experience for users. It allows customers to shop at their own ease with their own preference. The digital platforms have options like sorting and filtering, which provide customers a speedy shopping experience while meeting their real-life expectations and requirements.

Spencers Take

Spencers has always strived to deliver an enhanced shopping experience by offering a diverse product selection and a positive in-store experience. With a variety of items under one SKU, the consumer has a one-stop shop at their disposal. The Company includes a bilingual call centre with professionals that handle client comments and questions from all locations. Customers can contact the Company via a variety of channels, including a toll-free number, email, website, social media platforms, digital YVM, and NPS. As a result, the Company guarantees reaching a larger audience, assists them with their questions and feedback, and provides them with a better purchasing experience every time. This back-end assistance has greatly aided the Companys ability to communicate with customers effectively.

E-commerce Promotes Savings Culture

People often tend to spend more time and money at physical stores compared to shopping online. Monetary savings among general masses declined in India between 2014 and 2019. However, during the lockdown in 2020, domestic savings surged to a 20-year high levels. This reflects value conscious nature of the Indian consumers. Further, same was demonstrated with huge offtake during festive season sales with people preferring to grab good deals.

The vast majority of e-commerce purchases require a bank account and the most common methods of making online purchases include credit and debit cards, mobile wallets, and UPI. Spencers offers a variety of digital choices, such as internet banking, debit and credit card payments, and mobile wallet payments. The Company also provides payment choices, including a variety of deals, cashbacks, and discounts. On a regular basis, the Company offers attractive discounts and cashbacks on a wide range of items.

COMPANY OVERVIEW

Spencers Retail Limited (the Company, Spencers or we,) is an Indian multi-format contemporary retailer owned by the RP- Sanjiv Goenka Group. Headquartered in Koikata, the Company, is among leading players in the FMCG space, with food and non-food items, including Fashion, Staples, General Merchandise, Personal Care, Home Essentials, Electrical & Electronics and many more. Our speciality sections are : Spencers Gourmet, Patisserie and Wine and Liquor.

Spencers is an established player and enjoys a healthy brand recall across its segments. With presence in over 42 Indian cities, Spencers operates 190 Stores in India including 36 Natures Basket Stores. The Company operates in two retail formats, smaii- format stores with range up to 5,000 sq ft, catering to the daily and weekly top-up shopping needs of consumers along with iarge-format stores with store size over 5,000 sq ft.

OPERATIONAL PERFORMANCE

OPERATIONAL PERFORMANCE

The Companys consolidated revenue from operations during 2021-22 stood at 2,376.55 Crore, gross margins stood at 20.7%. In response to COVID-19 and its impact, we quickly adapted and evolved our business operations. The Company is experiencing a rise in demand across segments, including food and non-food products, as a result of the relaxation of COVID-19 limitations and the economic recovery. This has led to improvement in store footfalls during the year.

The Company ensures maintenance of the necessary COVID-19 protocols. The Companys main focus remains to better serve the customers. In light of the pandemic and lockdown restrictions, the Company has taken necessary step to develop digital retail channels. The shutdown of brick and mortar stores caused a significant drop in footfall of our retail stores, which sparked the emergence of online shopping platforms through mobile apps, phone delivery and even ordering through WhatsApp.

These circumstances eventually prompted Spencers to create a solid digital platform with an ‘OMNI-Channel distribution network. Furthermore, with increased footfall, the Company is now expanding its brick and mortar store. Thereon, enhancing the Companys readiness to respond to dynamic shifts in the Indian Retail Stores segment.

FINANCIAL REVIEW

Financial Results	Standalone for the Year Ended March 31		Consolidated for the Year Ended March 31
	2022	2021	2022	2021
Turnover (Induding other Income) (Rs.) in Crores)	2,067.11	2,116.13	2,376.55	2,481.47
Return on Equity (%)	(32.91%)	(37.13%)	(196.36%)	(87.94%)
Net Assets Value per Share (Rs.)	28.51	38.23	6.86	20.67
Earnings per Share (Basic) (Rs.)	(9.38)	(14.81)	(13.48)	(18.97)

DETAILS OF SIGNIFICANT RATIO CHANGES Standalone

	2021-22	2020-21	% Change	Reason for Change
Interest Coverage Ratio	(0.41)	(6.25)	(93.48%)	Improvement in ratio due to reduction in losses in current year.
Operating Profit Margin (%)	(0.43%)	(2.85%)	(85.01%)
Net Profit Margin (%)	(4.23%)	(6.18%)	(31.55%)
EPS (Basic) (Rs.)	(9.38 )	(14.81)	(36.65%)
Debt Equity Ratio	(1.14)	(0.50)	(128.00%)	Increase in borrowings during the year.
Debtors Turnover (Days)	(5.26)	(8.17)	(35.62%)	Decrease in average trade receivables in current year.
Inventory Turnover (Days)	42.42	41.14	3.11%	-
Current Ratio	0.51	0.63	(19.05%)	-
Return on Net Worth (%)	(32.91%)	(37.13%)	(11.37%)	-

Consolidated

	2021-22	2020-21	% change	Reason for change
Interest Coverage Ratio	(0.87)	(3.83)	(77.22%)	Improvement in ratio due to reduction in losses in current year.
Operating Profit Margin (%)	(1.09%)	(3.00%)	(63.67%)
EPS (Basic) (Rs.)	(13.48)	(18.97)	(28.95%)
Return on Net Worth (%)	(196.36%)	(87.94%)	(123.30%)	Due to losses incurred during the year.
Debt Equity Ratio	5.83	1.37	325.55%	Increase in borrowings during the year.
Debtors Turnover (Days)	4.48	7.23	(38.04%)	Improvement in ratio due to decrease in average trade receivables in current year.
Inventory Turnover (Days)	41.89	38.76	8.08%	-
Current Ratio	0.50	0.59	(15.25%)	-
Net Profit Margin (%)	(5.28%)	(6.75%)	(21.78%)	-

RISK MANAGEMENT

Spencers has a robust risk management framework alongside appropriate policies and procedures in place to identify, evaluate, mitigate and report risks. The risk management committee, overseen by the Board, identifies and evaluates threats using digital tools and draws mitigation strategy. Besides, the Company conducts external evaluations and audits by audit professionals and external audit firms. Our risk landscape includes Pandemic Risk, Inventory Risk, Supply Chain Risk, Competitive Risk, Compliance Risk, IT Risk and Quality Risk.

Risks	Description	Mitigation
Pandemic Risk	Potential risk of loss due to additional COVID-19 waves, resulting in reduced store footfalls	The Companys products are among essential categories, which translates to most of our stores being operational even during the lockdown
		The Company has strengthened its OMNI-Channel network, leading to increased consumer reach through online e-commerce channels
		The Company strictly adheres to all COVID-19 preventative measures, such as temperature checks at the entry, and social distancing in stores, enabling safer functioning amid the pandemic concerns
Inventory Risk	Loss due to unavailability of inventory leading to customer dissatisfaction and reduction in customer loyalty	Inventory levels are regularly monitored by store operations and supply chain teams to ensure adequate stock availability
		The Companys flexible inventory procedure ensures realtime inventory reporting
		The Company analyses essential data points in order to forecast inventory levels, allowing timely reorder and maintenance of adequate stock levels
Supply Chain Risk	Potential loss to the Company due to supply-side delays caused by interruptions in logistics and distribution networks	The Company operates distribution centres and works with third-party supply chain management for logistical support
		The Company endeavours to minimise supply-chain disruption risks by working closely with suppliers, across territories
Competitive Risk	Risk of loss to the Company arising out of intense competition in retail store chain industry owing to differentiated products and new entrants of varying sizes and store formats	The Company continually strives to maintain brand visibility distinction through private brand campaigns and various other initiatives
		The Company implements strategies and campaigns to retain and acquire customers, wherein we acquired Natures Basket for product range expansion and widened customer reach
		The Company has specialty segments, including Spencers Gourmet, Patisserie, Wine and Liquor, and recently launched Epicuisine, providing the Company with a much-needed differentiation
Compliance Risk	Failure to comply with ethical standards could expose business to reputation risk and loss of goodwill.	Spencers & Natures Basket Team is equipped with appropriate skills and Knowledge and digital capability to regularly monitors regulatory requirements
	One of the most serious threats to the Companys reputation is possibility that Material Non-Pubiic Information	The Company has a Code of Conduct in place to govern, monitor, and report insider trading in accordance with the SEBIs Prohibition of Insider Trading Regulations
	(MNPI) would be exploited, resulting in an insider trading prosecution	As mandated by SEBI, the Company has buiit an in-house portal for Insider Trading Compliance and installed a Compliance Management System (CMS) as part of the ongoing efforts to promote corporate governance
		The Company has an effective Whistleblower policy that allows employees to raise concerns unhesitatingly
IT Risk	Potentiai ioss of information and IT system failures related to performance, inciuding cyberattack concerns, potentially affecting the operational capabiiities of stores, centres, warehouses and distribution systems	The Company conducts regular inspections of the internal IT security systems to prevent sudden system failures
		The Company further protects these systems, with a variety of disaster recovery plans, and adequate firewalls
Quality Risk	Loss of trust and customer confidence due to ineffective product quaiity and services	The Companys quality team performs rigorous quality and safety checks to ensure aii quaiity standards are foiiowed
		The Company takes customer complaints seriously. Thereon, Spencers service team is trained to be patient with customers issues and ensure speedy and effective customer redressai

HUMAN RESOURCE MANAGEMENT

We believe that human resources are vital for building, strengthening, and altering an organisations culture. So, we ensure that our human resources department is in sync with the Companys goals at all times. It develops digital solutions and facilitates a transparent and service-oriented culture within the Company. People-friendly policies and procedure are among our priorities, wherein we focus on implementing finest HR policy practices.

We aim at hiring and retaining the best talent for our organisation. We are equal opportunity employers and believe in diversity in our workplace and equitable remuneration for all. We hire people from all walks of life across geographies. We also hire people with disabilities for roles that are friendly to their working condition. We are a non-discriminatory employer and value diversity at workplace. Therefore, wev remain dedicated to fostering a positive and healthy work environment. The Company strongly focuses on employee training and development. We provide functional training and customer first training programmes - Parichay. Aimed at preparing our people for customer interaction. We also provide further career development opportunities to our employees through our initiative Utthaan. At Spencers, we aim at creating an inclusive and supportive work environment. Employees are empowered in a way that encourages positive behaviour, resulting in improved performance and value addition for customers. The Company also evaluates and recognises its top talent through its R&R events Umangand Utsav. We believe a motivated and happy workforce, aligned with the organisational objects can propel the Company to the next orbit of growth.

Spencers has been recognised as the A Great Place to Work for third year in a row. As of March 31, 2022, the Companys consolidated talent pool stands at 5,462, including women accounting for about 23% of total workforce. Spencers lays a great focus on womens empowerment, encouraging its female employees to participate in numerous training programmes, like as Saheii and Naari Shakti, to help them grow and develop. Furthermore, the Company also employs individuals having completed National Apprenticeship Promotion Scheme (NAPS).

INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

Spencers internal controi system and internal audit processes are designed to safeguard the organisations assets and resources, and to provide reasonable assurance on the reliability of financial reporting and other operational data. We ensure aii our processes are compliant to established policies, procedures and statutory requirements. The Company has developed well-documented guidelines, procedures for authorisation and approvals, including regular audits. The internal audit system encompasses all financial and operational controls across all divisions, functions, and departments. Our internal audit team reviews the organisations various functions on a regular basis and identifies opportunities for improvement.

CAUTIONARY STATEMENT

The statements in the Management Discussion and Analysis section describing the Companys objectives, projections, estimates and prediction may be considered as forward-looking statements. All statements that address expectations or projections about the future, including, but not limited to; statements about the Companys strategy for growth, product development, market positioning, expenditures and financial results, are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Companys actual results, performance or achievement may thus differ materially from those projected in such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forwardlooking statement on the basis of any subsequent developments, information or events. To avoid duplication and repetition, certain heads of information required to be disclosed in the Management Discussion and Analysis have been included in the Boards Report.

	For and on behalf of the Board of Directors
	Dr. Sanjiv Goenka
	Chairman
Kolkata, May 12, 2022	(DIN 00074796)