V-Mart Retail Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

Economic Overview

Global Economy

In 2024, the global economy continues to demonstrate steady growth, reminiscent of the previous fiscal year. While this is a positive sign, its important to acknowledge the potential influences that could shape future trends. Recent geopolitical tensions in regions like Ukraine and Gaza have drawn attention, highlighting the importance of monitoring global developments. Moreover, factors such as sustained core inflation and tight labour markets suggest a robust economic landscape. As expectations of higher interest rates emerge, it signals a proactive response to maintain economic stability. As per IMF report released in April 2024, global growth, which was estimated at 3.2% in 2023, is anticipated to maintain the same pace in 2024 and 2025. This growth rate is deemed low compared to historical norms, influenced by various factors including immediate issues such as high borrowing costs and the winding down of fiscal support and Russias incursion into Ukraine. As a reaction, policymakers adapted monetary strategies and implemented fiscal stimulus packages to address these challenges and strengthen the economys resilience.

 

Global Growth Trend and Inflation

Growth Projections:

Global Economy

(Real GDP, Annual Percent Change)	Estimate	Projections
	2023	2024	2025
World Output	3.2	3.2	3.2
Advanced Economies
Advanced Economies	1.6	1.7	1.8
Emerging Market and Developing Economies	4.3	4.2	4.2

 

World Economic Outlook Growth Projections (Real Gdp, Annual Percentage Change):

(Real GDP, Annual Percent Change)	2023(E)	2024(P)	2025(P)
World Output	3.2	3.2	3.2
Advanced Economies	1.6	1.7	1.8
United States	2.5	2.7	1.9
Euro Area	0.4	0.8	1.5
Emerging Markets and Developing	4.3	4.2	4.2
Economies
Emerging and Developing Asia	5.6	5.2	4.9
China	5.2	4.6	4.1
India	7.8	6.8	6.5

 

Outlook

Projections indicate that the global economy will maintain a similar pace of growth in 2024–25 as observed in 2023, with both headline and core inflation expected to decline marginally.

However, the forecasted global growth for these years falls below the historical average of 3.8% which can be attributed to tight monetary policies, reduced fiscal support, and sluggish productivity growth. Advanced economies are anticipated to experience a slight uptick in growth, primarily due to a recovery in the euro area following low growth in 2023. Conversely, emerging markets and developing economies are projected to sustain stable growth through 2024 and 2025, albeit with regional variations.

 

Comparing the Global and the Indian Growth (GDP) Going Forward (CY-Basis)

	2023	2024	2025
Global	3.2	3.2	3.2
India	7.8	6.8	6.5

 

Domestic Economy

Despite a benign global scenario, the Indian economy grew by 7.6% in FY 24, making it the fastest-growing economies among developed and developing economies. Various high-frequency indicators demonstrate the robustness of the domestic economy. As of March 31, 2024, the monthly Goods and Services Tax (GST) collection reached Rs. 2 lakh crore, marking an impressive year-over-year growth of 11.5%. The Purchasing Managers Index (PMI) for manufacturing has surged to a 16-year high, while UPI, the primary digital payments system, continue to record higher volumes since its launch in 2016. With rural demand picking up momentum, consumption is anticipated to be a key driver of economic growth from 2024 to 2025. Urban consumption indicators also show robustness. The government has launched several key initiatives to boost the economy and promote self-reliance in India. Stimulus packages aim to support sectors facing economic challenges, while the Aatmanirbhar Bharat campaign focuses on domestic manufacturing growth. Efforts to attract foreign investment include permitting 100% Foreign Direct Investment (FDI) in single-brand retail through the automatic route, aiming to streamline business processes and strengthen the Make in India initiative.

Source: NCAER

 

Headline Inflation

Headline inflation as of 31^st March 2024 moderated to 4.8% which is a notable improvement from previous months projections (5.1%) but it still surpasses the 4% target.

In rural areas, the inflation rate stands at 4.8% as of end of April 2024, which is 0.7% higher than the urban inflation rate of 4.1%. Meanwhile, food inflation in April remained 8.6% from the previous couple of months. Food price uncertainties persist, exerting pressure on future inflation trends. The ongoing disinflation process faces obstacles due to the considerable volatility in food inflation. Persistent high food inflation risks destabilising the anchoring of inflation expectations currently in progress. However, the robust growth momentum, along with Indias GDP projections for 2024-25, provide the policy flexibility to prioritise price stability. Even, the demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) decreased by 26.2% compared to the previous year.

Source: The PIB : NCAER

 

Outlook

The Reserve Bank has opted to maintain its GDP growth forecast at 7.0% for the FY 2024-25. Looking forward, India is poised to emerge as the worlds third-largest economy by 2030. The drivers of future growth encompass robust domestic consumption, evident structural demand, and enhanced health in both corporate and banking sectors. The nations recovery is propelled by factors such as domestic consumption, a shift towards renewable energy, improved trade policies, heightened investments in infrastructure, and the ongoing digitalisation. With the implementation of comprehensive strategic reforms, India is well-positioned for sustained economic advancement.

Sources:

• Ministry of Statistics & Programme Implementation

• The Hindu

• Business Standard

 

Industry Overview

Indian Retail Market Overview

Indias retail sector commands a formidable presence on the global stage, securing fourth position in terms of market size and making a substantial contribution of over 10% to the nations GDP. The Indian retail industry has become one of the most competitive and quick-paced sectors and has a valuation of $1 trillion. It is poised for remarkable growth, projected to escalate at a compound annual growth rate (CAGR) exceeding 13% by the year 2027. The retail sector in India is anticipated to reach a valuation of $2 trillion within the next decade. For the year 2024, the sector is poised for growth ranging between 10-13%. In terms of B2C E-commerce, Indias market size is projected to reach $59 billion by 2024, with a projected compound annual growth rate (CAGR) of 27% from 2019 to 2024.

Sources:

• Statista

• Indian Retailer

• Global Data

Organised retail in India has consistently outpaced the overall category growth, although recent performance has been tempered by potential challenges.

Factors influencing the trajectory of growth in the retail sector include shifts in consumer spending habits, the expanding middle class, trends favouring premium products, urbanisation, supply chain expansion, and changing channel preferences.

 

Indian Fashion Industry

In India, the fashion sector encompasses a range of segments including apparel, footwear, accessories, jewellery, and cosmetics. Among these, apparel stands out as the largest segment, contributing majorly to the total market value in 2023.

 

Apparel Industry

The apparel market in India is forecasted to achieve a revenue of US$106 billion by 2024, with an estimated annual growth rate of 3.8% (CAGR 2024-2028). Womens Apparel emerges as the dominant segment, representing the largest market share valued at US$51 billion in 2024. It is anticipated that 99% of sales in the Apparel market in India will be attributed to non-luxury items by 2024. Notably, Indias Apparel market is witnessing an upsurge in demand for sustainable and ethically produced clothing, driven by growing consumer consciousness and a shift towards mindful consumerism.

 

Footwear Industry

India ranks as the worlds second-largest footwear producer after China, contributing to 13% of global footwear production and

2.2% of global exports. The Indian footwear industry has the potential to expand significantly, with market size projected to surge to $31 billion by 2028, provided various measures are implemented. The market is expected to grow at an annual rate of 4.9% (CAGR 2024-2028).

 

Accessories Industry

In FY 2024, the accessories market in India records a revenue of US$98 billion, projected to grow at a steady annual rate of 4.7% (CAGR 2024-2028). The dominant segment within the market is watches & jewellery, accounting for a substantial market volume of US$83 billion in this fiscal year. Additionally, online sales are predicted to contribute 10.7% of the total revenue in the Accessories market by 2024.

 

Online Retail

India is poised to claim the title of the third-largest online retail market globally by 2030. While the Indian retail sector is predominantly unorganised, the landscape is expected to undergo significant transformation over the next 3-5 years. According to a report from Invest India, the e-commerce sector in India is anticipated to experience remarkable growth by 2030. Online retail is projected to constitute approximately 10.7% of Indias overall retail market by 2024. According to estimates, the India E-Commerce Market is valued at USD 113 billion in 2024 and is projected to expand to USD 299 billion by 2029, with a compound annual growth rate (CAGR) of 21.5% during the forecast period (2024-2029).

 

Outlook

By 2025, approximately 87% of Indian households are expected to be connected to the internet, with a notable 21% increase in mobile internet usage duration since 2019.

 

Company Overview

V-Mart in a Nutshell

V-Mart Retail has been a leader in organised value fashion retailing, serving millions of customers since 2002. More than just a chain of retail stores, it has evolved into a lifestyle brand offering fashion apparel, footwear, home furnishings, and general merchandise for the entire family at honest prices. V-Mart caters to the rising aspirations of the middle class in Tier II and III cities, providing affordable and high-quality fashion in a modern and comfortable setting. By embracing the concept of ‘value retailing, V-Mart meets the growing demand for affordable yet stylish fashion among the expanding middle class. In its apparel section, the Company focuses on ethnic, fusion, and western wear for women; formal, sports, and casual wear for men; and a variety of kids wear in different colours and designs. Apart from apparel, V-Mart also offers bags, toys, footwear, crockery, utensils, and a range of FMCG products, including packaged food and non-food items.

 

• Investments in Infrastructure:

Invested significantly in the renovation of new stores to enhance customer experience and improve operational efficiency.

 

• Supply Chain Enhancements:

Enhanced supply chain efficiency through the adoption of advanced tools and streamlined processes.

 

• Product Focus: Concentrated on offering fashionable products and designs tailored to meet the evolving demands of the youth demographic

 

• Digital Integration: Achieved seamless integration of offline and online customer experiences through strategic digitalisation initiatives.

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Financial Performance

The Company follows the accrual basis of accounting under the historical cost convention. Its accounts were prepared on the basis of Indian Accounting Standards (Ind AS) as per Section 133 of the Companies Act, 2013, read with Rule 3 of the Companies (Indian Accounting Standards) Rules 2015 and relevant amendments thereafter.

• In FY 2023-24, the net worth decreased to Rs.74,699 Lakhs from Rs. 84,900 lakhs in FY 2022-23

• Borrowing decreased to 11,000 lakh as compared to Rs. 14,783 lakhs in FY 2022-23

• EBITDA for FY 2023-24 decreased to Rs. 21,305 lakhs from Rs. 26,891 lakhs in FY 2022-23

• Profit after tax stood at Rs. (9,676)

Lakhs in FY 2023-24 as compared to Rs. (785) Lakhs in FY 2022-23

 

Working Capital Management

During the year, the Company opened 46 new stores taking the total store count to 444, 37 under V-Mart and 9 under Unlimited

• Current assets as on March 31, 2024, stood at Rs. 103,478 lakhs including an inventory of Rs. 81,607 lakhs, as compared to Rs. 105,772 lakhs including an inventory of Rs. 87,063 lakhs as on March 31, 2023.

• Current liabilities stood at Rs. 89,220 lakhs as on March 31, 2024, as compared to Rs. 77,237 lakhs as on March 31, 2023.

• Cash and cash equivalents stood at Rs. 2,723 lakhs as on March 31, 2024, as compared to Rs. 1,806 lakhs as on March 31, 2023.

• RoCE stood at 0.6% compared to 4.9% in FY 2022-23.

 

Significant changes in key financial ratios

• Return on Equity Ratio (in %) - 1307.6% - Majorly on account of loss incurred during the year

• Trade Payable Turnover Ratio (in times) - (31.6%) - Majorly due to increase in trade payables

• Net Capital Turnover Ratio (in times) - 125.4% - Majorly on account of decrease in working capital

• Net Profit Ratio (In %) - 984.4% - Due to increase of losses in the current year

• Return on Capital Employed (in %) - (88.4%) - Due to increase of losses in the current year

• Return on Investment (in %) - 148.8% - Improved due to improved market condition during the current year.

 

Human Resource Development

The Company values its human capital for ensuring business continuity, fostering personal and professional growth in a secure, supportive, and productive environment. With a skilled management team driving growth, it relies on its experienced workforce to enhance efficiency, develop strategies, and adapt to industry changes. Regular training programs maintain morale. Core values of customer focus, agility, prudence, and a process-driven approach are instilled in all employees. An open-door policy and employee-friendly HR policies promote a strong sense of belonging, with prompt issue resolution. This work culture attracts and retains a solid employee base crucial for business growth. In FY 24, the Company carried out several learning and development programmes, online learning platforms, internal workshops and seminars, ‘Saarthi Mentorship programmes, and cross-functional projects. The Company works towards retaining its top performers and reducing overall attrition rates. It is dedicated to upholding the privacy and personal dignity of each employee. As of March 31, 2024, the Company had a total of 10,935 permanent employees.

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Internal Control

The Company upholds a robust internal control system to safeguard assets and ensure accurate transaction recording and reporting. An Internal Audit Department conducts audits, reporting findings to management and the Audit Committee. A Risk Management Committee identifies and mitigates various risks, reporting to the Board. Periodic reviews of the risk management framework and policies are conducted by the Risk Management Committee, reporting to the Board of Directors. The Control Self-Assessment process aids in process improvement. A Code of Conduct and Whistle blower Policy ensure ethical standards, accessible on the Companys website. The Company ensures compliance with all applicable provisions of the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and other relevant laws and regulations concerning internal control and risk management.

 

Risk Management

Enterprise Risk Management

The organisation has established an integrated risk management framework that draws upon principles from COSO ERM Framework 2017 ISO 31000, and mandatory reporting requirements outlined in the Companies Act and SEBI regulations. This comprehensive framework aligns closely with our strategic objectives and addresses a spectrum of risks across financial, operational, strategic, compliance, and reputational aspects of the business. Additionally, we are committed to robust ESG practices, ensuring responsible environmental stewardship, positive social impact, and strong governance. Our dedication to continuous improvement drives enhancements to our risk and governance framework, supporting our vision of becoming a prominent value retailer in Bharat. The Board of Directors actively oversees and governs this risk management framework, which seamlessly integrates with business functions using a combination of top-down and bottom-up approaches.