V-Mart Retail Ltd Management Discussions.

Global Economic Overview

Followed by an upsurge in cyclical growth in the last two years, the global economy is on the path to stabilize, but its momentum uncertain and is exposed to certain challenges. As estimated by IMF, global growth is now projected to soften from 3.6% in 2018 to 3.3% in 2019, before returning to 3.6% in 2020. The escalation of US–China trade tensions, disruptions to the auto sector in Germany, disagreements over Brexit, tighter credit policies in China and gradual financial tightening in developed economies are all adversely impacting global sentiments, thereby reducing overall spending.


Global growth forecasts combine the effects of slowdown in advanced economies and a gradual upsurge in emerging economies. Despite weaker performance projected in advanced economies, growth in emerging markets is expected to decline marginally from 4.5% in 2018 to 4.4% in 2019, before increasing to 4.8% by 2020.

As fiscal stimulus recedes, the United States is expected to face growth challenges. Chinese expansion is also projected to moderate, while Europe is expected to be weighed down by concerns around Brexit. Across the emerging markets, the view is that tech and oil-exporting economies may likely struggle in relative terms.

Indian Economic Overview

Indias GDP growth is estimated to have grown by 6.8% in FY2018-19 as compared to 6.7% in FY2017-18. The on-going structural reforms and liberal policies such as GST – One Nation One tax", "Start-Up India", Digital India", "Make in India", "Skill India", FDI liberalisation etc. are now beginning to show their results. With this, India is expected to become one of the top three economic powers in the world, possibly over the next decade. Indias labour force is expected to touch 160-170 million by 2020, on the back of factors such as population growth, increased labour force participation, and higher education enrolment.


According to a Boston Consulting Group (BCG) report, India is poised to become the third-largest consumer market, behind the US and China, with consumption expected to treble to US$ 4 trillion by 2025. This is owing to a shift in consumer behavior and expenditure pattern. World Economic Forum has predicted that by 2030, domestic private consumption, which accounts for 60% of the countrys GDP, is expected to develop into a US$ 6 trillion growth opportunity. Making India one of the worlds most dynamic consumption environments.

Retail Sector

Global Retail Industry was valued at US$ 23,460 billion in 2017 and is expected to register a CAGR of 5.3% to reach US$ 31,881 billion by 2023 as per Retail Market Global Report (2018-2023). The retail market is mature and highly competitive in the developed economies of Europe and North America. On the other hand, the developingeconomiesofAsia-Pacific,Middle East, and Latin America have been influential in driving the market growth. The growth in developing economies will mainly be driven by higher consumer spending, increase in online as well as offline shopping, and more global players entering these markets.

India is considered to be Asias third-largest retail market and the worlds fourth-largest, after the US, China, and Japan. It is one of the fastest growing major economies in the world, in turn leading to high growth in consumer and retail markets. Food and grocery contributed to a majority share (67%) of the 2017 retail market in India, followed by apparel and footwear, consumer durables and IT. The retail industry in India is projected to grow from US$ 710 billion in 2017 to US$ 877 billion by 2021 and US$ 1,250 billion by 2026, mainly driven by increase in private consumption.

Modern Retail is Gaining Prominence

The "Traditional Unorganised Retail Market" constitutes 89% of Indias retail sector as compared to the unorganized retail contribution of 15-20% to the total retail sales in countries such as U.K., U.S. etc. Modern Retail penetration in India is expected to increase from 9% in 2017 to 14% by 2022. This will be largely at the expense of traditional retail. In addition E-Commerce has also started gaining prominence over traditional retail.

The modern retail market in India is expected to increase twofold, from around US$ 79 billion in 2017 to US$ 175 billion by 2022. Modern retailing in India has entered in the form of huge malls and supermarkets with a variety of formats, such as discount stores, supermarkets, hypermarkets to specialty chains. However, kirana shops still continue to score over modern formats primarily due to the convenience factor.

With a number of international brands entering the market, there is ample opportunity and dynamism for the industry. The Government has also approved 51% FDI (Foreign Direct Investment) in multi-brand retail and 100% in single-brand retail under the automatic route. Growing incomes, increasing awareness and high aspirations in Tier II & III cities have been encouraging several retailers to make a beeline to these smaller markets.

Fashion Retail

According to McKinsey ‘The State of Fashion 2019 Report, the Fashion retail market is exposed to external shocks and growth will be restricted in 2019. McKinsey Global Fashion Index (MGFI) forecasts growth of 3.5% to 4.5% for 2019, slightly below 2018 growth, predicted at 4% to 5%. In 2019, most of the growth in retail will be led by luxury segment and emerging markets in Asia. The MFGI Growth in APAC Emerging market is expected between 6.5% – 7.5% in 2019.

The Fashion Market in India is estimated to grow at a CAGR of 7.7% from US$ 56bn (Organised – US$ 14bn) in 2017 to US$ 103bn by 2027. India has become a focal point for the fashion industry, led by its high middle-class consumer base and a strengthened manufacturing sector.

The fashion Industry in India is dominated by Apparels, which contributes 79% of the total. The share of Apparel is expected to decline to 73% by 2022, which can be attributed to higher spending in Accessories and Footwear by working women.

Commensurate with healthy growth in GDP, there is an improvement in lifestyles and aspiration levels. With the steady increase in the overall retail spending, particularly in the fashion segment, India has seen a rapid increase in brands, both local and international, in recent years. The advent of brands has made it evidently clear that the old lines between fashion consumers in big cities and small towns is fast blurring. Tier II & III cities have ready customers, hungry for branded fashion. While global brands are looking to expand in metros, homegrown brands are moving into Tier II & III cities with a ready base of customers. The share of branded retail is expected to increase from 37% in 2017 to 50% in 2022.

In 2017, 24% of Fashion Retail was categorised into modern retail and this share is expected to be 33% by 2022.

The Apparel Market

India is the 5th largest market for textile and apparel products in the world. According to McKinsey FashionScope, Greater China is expected to overtake the US as the largest fashion market in the world in 2019 . Apparel and accessories contribute approx. 8% of the total merchandise retail market and is the 2nd largest after food & grocery. Apparel market in India is estimated to grow at a CAGR of 8% from US$ 51 billion to US$ 97 billion by 2025. The growth in Indian Apparel Market is the highest among the top ten countries by apparel market size.

Menswear holds the largest share in the Indian apparel market accounting for 42% of the total market. Womenswear contributes almost 37%, while kids wear contributes 21% of the market. However, in mature markets like USA and UK, the ratio of womens wear to mens wear is approximately 2:1. Womens share is expected to outpace mens wear and occupy 41% market share by 2025. This growth will be mainly driven by increase in the number of working women and the emergence of several big branded players in this segment.

Value Fashion

The Indian consumer though while increasingly looking for new trends and fashions, is largely an extremely value conscious buyer. Consequently, Value Fashion is expected to be the key growth pillar of this industry.

Better product assortment, right pricing and presence in the right categories will all be key objectives for companies in the sector. Further, private labels are becoming key and playing a more constructive role in adapting to changing preferences and new trends. Companies that innovate, understand the consumer and have a vibrant portfolio of private labels are expected to possess a distinctive edge going forward.

Apparel retailers are classified into three broad categories based on the average selling price (ASP) of their products pricing:

Value Fashion Popular and mass-priced products currently constitute about 57% of the total fashion market. Product pricing remains the key performance driver both in India and globally. As per a report, by Antique, Value fashion retailers, backed by value pricing in India outperformed LF retailers during FY13-18.

Fast Fashion and Value fashion popular (INR350-1000) are growing at 15-20%. Younger consumers, particularly in Tier II & III towns, are more prepared to experiment and try something new, but are well aware of their options and value. Consequently, due to the larger base of target consumers and higher expected growth, retailers are focusing more on the value segment to drive their volume growth.

Apparel retailing industry in India is primarily concentrated between medium price range of INR 1000-1500 and economy price range of INR 500-1000, which constitutes 29% and 28% of market share, respectively. The sweet spot value price or average selling price (ASP) in kids wear is < INR 500, in women wear it is between INR 500-1000 and, in men wear, between INR 1,000-1,500.

VFM mass retail market is concentrated in North and East India both in terms of number of players and geographical presence. With increasing competition, VFM retailers are planning to drive revenue growth by expanding into less-penetrated markets. Higher growth is expected in women and kids wear in VF mass with gradual upgrading of women from unorganized to organized in rural areas.

Expansion plans of VF mass retailers coupled with higher penetration by VF popular will drive overall growth in retail industry.

Trends and Growth Drivers for Fashion Retail including Value Fashion in India

Indian Retail Industry is well-placed for steady and healthy growth as consumers affordability is on the rise and aspirations are growing rapidly. Healthy economic growth, increasing disposable income and urbanisation results into an upgraded lifestyle with people looking for value and improved options. A growing young population is more exposed to the latest styles and trends. With the implementation of GST, the movement of goods across states has been simplified due to a standardized set of rules in place. BCG Group expects 60-70% of the branded apparel market will be digitally driven by easy availability of plastic money in the form of credit and debit cards. Although, digital influence in fashion has increased by more than 5x since 2013, there are an increasing number of digital customers who was prefer to seek latest trends and design online, but purchase offline for touch, feel, fit.

Key Challenges in Fashion Retail

Despite India being one of the most attractive and lucrative markets, reaching out to smaller markets in Tier III, IV and V cities is a major challenge from both a bandwidth and logistic perspective. Further, rapidly changing consumer preferences has led brands in the fashion industry to usually roll-out their new collection seasonally, which results in longer time-to-market. Heavy discounts offered by different players plays a large role in online fashion retailing growth, which intensifies competition. Similarly, an overall slowdown in the economy may result in customers reducing their purchases. Companies that can best manage these factors and consistently deliver consumer delight are well poised to do well in this segment.

V-Mart Retail

V-Mart Retails business model has been built around "value retailing in emerging India", to address the huge gap between aspirations and the presence of organised retail. All the stores of the Company are located in the relatively "under-serviced" India, extending across Tier II, III & IV locations. The Companys philosophy is to deliver on its brand promise, deliver product quality and not only affordable, but latest fashion, in a retail-mall like shopping environment.

Having opened the first store at Ahmedabad in 2003, the Company today has 214 physical stores spread across 170 towns in 17 states and Union territories. It was recognised by Bloomberg as "The Worlds Best Performing Department Store" in 2018.

The Companys key differentiators have been its ability to better understand the target consumers andcatertotheirneedsbycreatingtherightproduct experience and environment for them. Aspirations of these customers are sometimes very different from those in Tier I cities and metros. As it has the experience and understands these customers and preferences well, V-Mart has the capability to create considerable value. The emphasis is on delivering on a want that creates customer delight, but may not necessarily be cheap. For our customers, it is the experience and identity of the brand and their purchase that matters. Our initiatives are led by a lot of experimentation which includes marketing activities and advertising.

V-Mart is amongst the largest Value Fashion mass retailers and has developed several private label brands like Flick, Twist, Kidistan & Charcoal. The Company is also taking several initiatives towards enhancing its Value Fashion capabilities by focusing on widening product portfolio, enhancing the display and experience and ensuring availability of all the latest and relevant trends.

Concurrently, the thrust is on enhancing efficiencies and strengthening back end operations which translates into cost savings and a stronger competitive position.

Operational Review

A calibrated addition of stores, and scaling up the support infrastructure is a key focus area for the company. During the year under review, the company opened 44 new stores across the focus regions.

Same Store Sales growth for the year stood at 3.7%, while it amounted to 8.0% by volume. The Sales per sq. feet (per month), which is a key performance metric, stood at 805 as against 823 in previous year. In line with our strategy, revenue contribution continued to be largely weighted to Fashion, which contributed close to 93%.

Other performance metrics also showed good traction. Footfalls improved by 15.1%, well assisted by various promotions. The increase in footfalls has been accompanied by an increase in bill size too, which is an indication that our strategy is yielding the right results.

Our focus continues to be on enhancing the experience for the customer – not necessarily offer cheap goods, but present them with various options across price points and tweak the offering so as to bring them the best value.

Financial Analysis FY2018-19

V-Mart Retail Limited follows the accrual basis of accounting under the historical cost convention. Its accounts were prepared on the basis of accounting standards as per Section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules 2014 .

Balance Sheet

Net worth increased to 40,927 Lakhs as on 31st March 2019, compared to 34,744 Lakhs as on 31st March 2018.

Borrowings as on 31st March 2019 stood at 32.25 Lakhs, compared to 59.53 Lakhs as on 31st March 2018.

Profit and loss statement

Total revenues increased to 1,43,967 Lakhs compared to 1,22,651 Lakhs in FY2017-18. EBITDA for FY2018-19 is 13,293 compared to 13,279 Lakhs in FY2017-18. Depreciation and amortization stood at 2,762 Lakhs in FY2018-19, compared to 2,293 Lakhs in FY2017-18.

Profit after Tax stood at 6,163 Lakhs in FY2018-19, compared to 7,770 Lakhs in FY2017-18.

Working Capital Management

Current assets as on 31st March 2019 stood at 42,158 Lakhs, compared to 36,742 Lakhs as on 31st March 2018.

Inventories as on 31st March 2019 stood at 32,898 Lakhs, as compared to 30,711 Lakhs as on 31st March 2018.

Current liabilities stood at 21,144 Lakhs as on 31st March 2019, compared to 19440 Lakhs as on 31st March 2018.

Cash and bank balances stood at 1,659 Lakhs as on 31st March 2019, compared to 1837 Lakhs as on 31st March 2018.


FY2016-17 FY2017-18


Profit and loss statement
Total Revenue 1,00,580 1,22,651 1,43,967
PBT 6,682 11,247 9,981
Depreciation and amortization 1,855 2,293 2,763
EBIDTA 8,890 13,279 13,293
PAT 4,390.4 7,770 6,163
Basic EPS 24.30 43 34
Balance sheet
Networth 27,004 34,744 40,927
Borrowings 3,547 32 3
Cash and Bank Balance 287 1,837 1,659
Key Ratios
Inventory Days 86 86 81
EBIDTA Margin 8.8% 10.9% 9.3%
PAT Margin 4.4% 6.3% 4.3%
Lease and rental cost (% of revenues) 4.5% 4.3% 4.7%

Awards & Recognitions

V-Mart Retail is delighted to have received several recognitions in the year under review. In Jan 2019 V-Mart was bestowed the Transforming India Through Retail award, for "transforming lives in Tier II & III cities" by the Honorable Union Minister of Textiles. The Company was also bestowed with the Retail Champion Award for Apparel & Lifestyle by Retail Association of India. The Company was recognised in 2018 as The Worlds Best Performing Department Store as per Bloomberg data. Lalit Agarwal, the Chairman and Managing Director was also conferred the award of the ‘Retail Leader of the Year-2018 by Franchise India. Additionally the Company was the 2018 Winner of "Best Practice in Learning Transfer for Improving Business Bottom Line" at the World HRD Congress.

At the IMAGES Fashion Awards 2019, the Company was awarded:

In addition V-Mart Retail won the Indian Retail Champions Awards at the Retail Leadership Summit 2019, was recognized as North Indias Best Employer Brand at the 13th Employer Branding Awards and was bestowed the "Value Retailer of Choice" 2018" recognition by Progressive Grocer.

Human Resources

The Company believes that employees are the most valuable resource and play a crucial role for its growth. Being a customer interfacing service organization, V-Mart remains focused on attracting talent with strong capabilities. In addition, the Company ensures nurturing them through robust learning, training and development mechanisms, and retaining them through opportunities for learning and growth.

The Company trusts in harnessing its leadership and people capabilities by encouraging creativity and innovation within the organisation and a modest, respectful and caring attitude when interacting with customers. V-Mart hosts awareness campaigns, health camps, monthly games and quizzes, encouraging employees to practice, learn and grow interactively.

V-Mart has well-structured HR system & processes in place to provide better growth for employees, both at personal and professional levels. A reward and recognition mechanism is implemented to keep employee morale high and formally appreciate the efforts of a competitive and talented workforce based on their performance.

The Company also recognises the importance of employee engagement and their valuable feedback. V-Mart has a strong Whistle blower & Grievance Redressal Mechanism in place. It has an open door policy that ensures employees can freely approach senior management in case of any issue and that all complaints are resolved in a timely manner.

All these initiatives result in an organization with strong capabilities, a sense of belonging and a thirst for success.

Enterprise Risk Management

The Board of Directors has formed a Risk Management Committee to frame, implement and monitor the risk management plan for the company. The committee is responsible for monitoring and reviewing the risk management plan and ensuring its effectiveness. The Company has a robust risk management policy in place to identify, manage and mitigate significant the company:

• Assessed the strategic and significant business ecosystem

• Evaluated competitive position in key markets and the impact of intensifying competition & in a dynamic regulatory environment

• Regularly monitored the progress of strategic initiatives and projects for remediation & treatment of risks identified

• Reviewed & monitored financial, operational and information security risks through internal risk registers, external assessments, internal audit findings and incidents

The Company is cognizant of the risks its business may encounter and has put in place systems and processes to address these. These include:

Merchandise Risk

An inappropriate understanding of market trends can result in lowered sales.

Mitigation: V-Mart has longstanding presence in Tier-II and III locations and is thus well-acquainted with varied and evolving consumer preferences in these regions. This experience results in relevant production and higher conversion to sales.

Inventory Risk

Unsold inventory can result in working capital crisis which may affect long-term sustainability.

Mitigation: The Company has automated its central warehouse and automated stock replenishment for ensuring availability of ‘right inventory at ‘right place. As part of liquidation framework, slow moving inventory are sold by offering promotional discounts or are transferred to other store locations.

Locational Risk

The Companys expansion plans by entering into new towns could adversely impact its profitability if the new location does not deliver adequate demand.

Mitigation: Before commissioning new stores in a new location, the Company conducts manner survey for calculating the potential demand in that area. Moreover, the risk is further mitigated by V-Marts inherent ability to offer quality products at reasonable prices.

Margins Risk

In a low-margin business, it may be unviable for the company profitable

Mitigation: V-Mart has an efficient and proven business model of integrating market penetration, expansion & product development to build a strong & sustainable organic growth model. Widespread market reach, growing consumerism, efficient sourcing and optimizing of costs on a larger base constitutes key pillars of success for the company.

Rental Risk

High urban rentals can reduce profitability

Mitigation: The Company is strategically present in Tier-II,

III and IV cities. This well diversified presence has helped reduce lease and rental costs significantly.

Information Risk

Improper investment in people, processes and technology could adversely impact the Company.

Mitigation: The Companys aspiration to adequately invest in three important parameters (people, processes and technology) has helped it precisely analyse the market leading to right and perfect decision.

People Risk

Retention of Expert talent & reducing attrition

Mitigation: The company has lucrative compensation & benefit structure across all levels for fulfilling the aspirations of motivated employees. Special focus on innovation, people development, skill enrichment and engagement activities have facilitated the company to have a continuously evolving human capital.

Internal control systems and their Adequacy

The Company has an effective internal control system in place that ensures the internal processes comply with regulated business policies and procedures. The Board of Directors has adopted appropriate measures ensuring orderly and efficient conduct of its business. These controls have been designed to provide reasonable assurance with regard to adherence to the Companys policies, safeguarding of its assets, prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial disclosures. The audit committee ensures that the financial reporting process and the disclosure of its financial information are correct, sufficient and credible in line with the provisions of Regulation 18 of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 read with Section 177 of the Companies Act, 2013 that these are reviewed by the management and recommendations are made prior to the of financial statements. Reports of internal auditors are reviewed by the Audit Committee, and corrective measures are carried out towards further improvement in systems and procedures and compliance with Internal Control System.

Outlook and Opportunities

The organised retail segment, as discussed earlier, is on the cusp of strong growth and V-Mart Retail is optimally positioned to leverage the opportunities therein. With a large component of economic growth expected to come from Tier II & III towns, V-Mart Retail with the most established presence in these regions, is excited about its prospects. The Companys emphasis will be three-fold:

1. Aggressively grow store network: The Company already has 214 stores. Its thrust will be on continuing to deliver affordable value fashion to the aspiring class to best connect to all its target audience.

2. Enhance customer experience: The continuing objective for the Company is to enhance customer experience through a combination of consumer insight and technology. V-Mart is focused on strengthening its position through diversified offerings at reasonable prices.

3. Technology: V -Mart Retail is cognizant of the increasing relevance of technology across all paradigms of its business and is focused on building its team and capabilities to maintain finalisation its cutting-edge technology.

Cautionary Statement

This discussion contains statements about expected future, events, financial and operating performance of V-Mart retail. The statements are made making certain assumptions the basis of which may change going forward. The Company does not undertake to amend these assumptions or outlook on a continuing basis. The reader is hence advised not to completely rely on the commentary herein but to read this report in conjunction with other materials (s) he refers to.