v2 retail ltd share price Management discussions

Economic backdrop

India is one of the top economies in the world by nominal GDP and the third largest in terms of purchasing power parity. Despite the recent reduction in the pace of GDP growth, and the past years of degrowth due to the pandemic, India is expected to be one of the fastest growing major economies of the world.

Attractive demographics

India has a relatively young population with almost 50% below the age of 25 and more than 65% below the age of 35. It is estimated that the Indian workforce would soon be the largest in the world with a global share of almost 20%. Indias youthful population, the increasing participation of women in the formal workforce, and changing consumer preferences are all expected to have a positive impact on the lifestyle and fashion business in the country. This presents significant opportunities for businesses operating in this sector to cater to the evolving needs and preferences of the Indian consumer market.

Urbanization

AAccording to Economic Survey of India, it is projected that Indias urban population will grow from an estimated 37.7 Crores in 2011 to 60 Crores by 2030, comprising over 40% of the countrys population. Given the increasing contribution of manufacturing and service industries to the national GDP, urban agglomerations are the key drivers of consumption. There is a consistent trend towards urbanization, suggesting a shifting set of preferences away from rural life to the accessibility and convenience of city life. Urban areas usually lead in key developmental indicators, including availability of economic and social infrastructure, while also offering financially remunerative careers and business options for ambitious & enterprising individuals. Urbanization is leading to growth across not just metros and tier I cities but also tier II and tier III cities. Increasing urbanization levels are expected to lead to changes in the consumption patterns of the population. As urban lifestyles become more prevalent, there may be shifts in the types of products and services that people consume.

Rising disposable income and consumption

Higher disposable incomes are a driving factor for robust growth. Aspiring and affluent households have given a fillip to Indias domestic consumption. Over time, consumers have increased their spends on lifestyle products such as apparel, footwear,

Y-O-Y growth of the Indian Economy

Particulars	FY 19	FY 20	FY 21	FY 22	FY 23
Real GDP Growth (%)	6.5	3.9	-5.8	9.1	7.0

(Source: RBI Annual Report 2022-23)

personal care items, jewellery along with greater adoption of financial products evidencing growing aspirations and increasing affinity for consumption. In absolute terms, domestic consumption in India has increased more than fix over the last decade. Domestic consumption is expected to grow at a CAGR of over 8% with the aggregate size of well over US$ 2.5 trillion by 2025. Overall, higher disposable incomes and the resulting increase in domestic consumption are significant drivers of economic growth in India. This growth is fuelled by peoples aspirations for a better lifestyle and their willingness to spend on a variety of goods and financial products. These trends have the potential to positively impact various sectors of the economy and contribute to its overall development.

Indian retail industry overview

Retailing is one of the pillars of the Indian economy. At an estimated size in the region of US$ 1 trillion, India is one of the top five retail markets globally. It is also one of the fastest growing retail markets in the world. Indian retail industry is a massive and rapidly evolving sector that plays a crucial role in the countrys economy. With its diverse consumer base, ongoing digital transformation, and government support, it continues to present significant opportunities for retailers. However, navigating the complexities of the Indian market requires a deep understanding of consumer behaviour, regulatory compliance, and the ability to adapt to the unique challenges and opportunities it presents. The Indian retail industry is a dynamic and rapidly evolving sector with immense potential for growth. However, to succeed in this market, businesses must be prepared to address the complexities, diversity, and unique characteristics it presents while leveraging the opportunities it offers.

Some of the key drivers for growth include:

= Growing urbanization, participation of women in work force

= Rising disposable income, discretionary spending

= Increasing aspirations, fashion consciousness and brand awareness

= E-commerce and growing influence of social media due to wide availability of Smartphones and high speed internet

= Entry of international players across various retail segments

= Supply side innovations, improved manufacturing capabilities, efficient warehousing & distribution, leveraging technology

= Easy and on demand availability of credit.

Fashion and lifestyle market

Fashion retail market in India has witnessed various changes and challenges in recent years but has nevertheless been growing consistently. This growth is indicative of the countrys evolving fashion and lifestyle preferences. Value fashion is a promising segment in fashion retail with the potential of appealing to a wider customer base and reaching more addressable geographies. Popular and mass-priced products possibly constitute over 75% of the total fashion market in India. Online and offline fashion players are increasing focus on building private labels/ in-house brands to provide differentiated offerings to discerning customers. Private labels have additional inherent advantages such as lower concept to customer time, faster execution vis-?-vis dealing with third party brands, better control over quality & pricing and better margins. There is also a growing emphasis on enriching customer experience. Window displays, in-store ambience, coordinated product displays, lighting, music and communication help build brand presence and awareness. Exciting visual merchandising forms a key element in enhancing customer experience. Growing awareness, coupled with entry of international players in the industry is spotlighting visual merchandising as an integral proposition of retail. In conclusion, the fashion retail market in India is evolving rapidly, with a focus on value fashion, private labels, customer experience, and visual merchandising. As consumers preferences and expectations continue to change, retailers are adapting and innovating to meet these demands and differentiate themselves in a competitive marketplace.

Increasing acceptance of technology/ digital

Pandemic related restrictions brought about a paradigm shift in consumer behaviour. Consumers staying at home hastened adoption of digital shopping methods. Ubiquitous access to internet at more affordable prices and higher penetration of digital devices are influencing consumer buying behaviour. Increasingly, store & online channels are integrating, with consumers leveraging access to compare products, prices, brand offerings and the feedback / opinions of fellow consumers before making their purchase decision. The Indian e-commerce market penetration is expected to increase as total gross merchandise value is expected to grow from US$ 60 bn in 2020 to US$ 99 bn by 2024, driven by wider assortment and convenience. The COVID-19 pandemic has accelerated the digital transformation of the Indian retail landscape, with consumers embracing online shopping for its convenience, safety, and wide product assortment. The continued growth of e-commerce and the integration of online and offline channels are expected to shape the future of retail in India.

Source: Analyst and industry reports : Internal analysis

Indian organised retail industry

As internet penetration increases, the share of organised retail market is expected to increase from 12 percent in FY 2019 to 25 percent in FY 2024. Technology is expected a major role in enhancing consumer experience. The next 10-12 years could be defining for the Indian retail sector as the market matures and organized retail penetrates deeper into smaller cities and towns. While more international brands and retailers across categories and formats could enter and grow the Indian business, India could become a key growth market for ones already present. Indias organised retail penetration is lower than other countries like United States (85%), indicating headroom. Within organized retail, food & beverage account for around 65%, followed by apparel at 10% and personal care at 3%. The Indian Governments decision to permit 100% foreign direct investment in single-brand retail through the automatic investment route and relaxation of sourcing norms could strengthen the organized sector.

The Indian retail sector is poised for significant growth and transformation, driven by factors such as increasing internet penetration, government policies, and changing consumer preferences. The sector is expected to become more organized and attract both domestic and international players in the coming years.

(Source: Care Ratings, Financial Express, indiaretailing.com)

Outlook

The impact of inflation on the value retail segment during the initial months of FY 2023 is indeed a significant concern for both retailers and consumers. Its positive to hear that governments at both the central and state levels are taking measures to address this issue, and the Reserve Bank of India (RBI) is proactively working to rein in inflation. The expected rapid recovery in customer off-take starting with the festive season in September, followed by the wedding season, is a positive outlook for the value retail segment. These events often drive increased sales, especially for items like clothing, jewelry, and consumer electronics. Retailers can prepare by stocking up on relevant inventory and adjusting their marketing strategies to capitalize on these seasonal trends.

However, its important for retailers in the value segment to remain cautious and adaptable. Retailers should continue to monitor their pricing strategies and supply chains to ensure they can maintain competitive prices while managing costs. Additionally, keeping a close eye on changing consumer preferences and shopping behaviours is essential. The pandemic has accelerated the shift towards e-commerce and digital shopping, and retailers should be prepared to meet customers where they are most comfortable making purchases.

Overall, while the outlook for a recovery in the value retail segment looks promising on account of festive seasons approaching, its important for retailers to remain flexible and adapt to the evolving economic landscape, consumer preferences, and inflationary pressures.

Company overview

Established in 2001, V2 Retail Limited provides a comprehensive portfolio of product offerings addressing diverse pockets. The Company offers smart, trendy and fashionable apparels across categories at affordable prices under one roof. The Company operates 102 stores in 17 states and more than 89 cities (primarily Tier-II and Tier-III) covering a total retail area Rs10.83lakh sq. ft.

During the year under review, the Company opened 12 new stores and closed 11 stores. The Company plans to improve its store profitability and would be looking at rationalising certain stores before accelerate growth through accelerated store addition. To increase bill size, store productivity and store gross margins, V2 Retail plans to increase the share of its private labels across its stores.

The Company has one wholly owned subsidiary named V2 Smart Manufacturing Private Limited during the year under review. The company is engaged in manufacturing of apparel and others.

Key Strategic Areas:

Focus on margin-accretive private labels and increase its share in the Companys revenue

Focus on achieving same store sales growth

Inventory Management

Omni Channel Business

Launch stores in existing clusters

Financial Highlights (Standalone):

Revenues: Revenue during the year stood at B838.9 crore, a growth of 33% as compared to B 629.2 crore in FY2021-22.

EBIDTA: EBIDTA for FY23 stood at B 78.82 crore as compared to B 60.72 crore for FY22 Profit after tax: The Company registered a loss of B 14.48 crore compared to loss of B 12.90 crore in the previous year.

Key Financial Highlights

Particulars (B crores)	Standalone		Consolidated
	FY 23	FY 22	FY 23	FY 22
Revenue from Operations	838.88	629.22	838.88	629.22
EBIDTA	78.82	60.72	83.98	80.54
PBT	(18.83)	(16.36)	(16.95)	(14.86)
PAT	(14.49)	(12.90)	(12.82)	(11.68)
EPS (B)	(4.21)	(3.76)	(3.73)	(3.40)

Key Ratio (Standalone)

Particulars	FY 23	FY 22
Inventory holding days	107	155
Trade Payable holding days	60	65
Debt Equity Ratio (x)	0.19	0.19
PAT Margin (%)	(1.70)	(2.03)

Proportion of revenues from proprietary labels (%)

Year	2018-19	2019-20	2020-21	2021-22	2022-23
% of revenues	23	30	34	38	40

Risk Management

V2 Retails Risk Management function enables the achievement of strategic objectives by identifying, analysing, assessing, mitigating, monitoring and governing any risk or potential threats to their business functions. The risks associated with the business are successfully identified and mitigated on priority, based on its severity, likelihood and impact. Risk management policies are revised regularly to replicate deviations in market conditions and align the Companys activities to mitigation strategies. Risk are owned, managed and formally reviewed across V2 Retail using the following process:

Risks	Meaning	Mitigation Strategies
Economic and Market Risk	Major changes in the economic environment (such as the pandemic) may challenge the existing business strategy, have a material impact on financial performance and dilute our competitive advantage.	We rely on a multi-format click- and-mortar model that enables us to respond to changes in customer demand, manage the product mix and pricing policy and identify opportunities for growth.
Geographic concentration risk	Concentration in a particular geography could hurt business growth in case of a geographical slowdown	As on March 31, 2023, the Company operates 102 stores spread across 17 states and 89 cities with a total retail area of Rs10.83 lac Sq. Ft.
Shrinkage / Inventory Risk	Shrinkage in the retail business is defined as the loss in inventory through a combination of shop lifting, pilferage and errors in documentation and transaction processing that go unnoticed	We monitor shrinkage on a regular basis and look at various factors that could lead to shrinkage at stores and distribution centres. Store Operations and Supply Chain teams work together and monitor the shrinkage level on a month-on-month basis.
		Our shrinkage percentage is controlled and our endeavour will always be to lower this ratio through proper monitoring and continuously reviewing inventory management processes and systems.
Employee retention	Our strategic goals are heavily dependent on the competencies and performance of our people.	We monitor the labour market and provide employee benefits in line with market. We have also devised an ESOP policy to retain and attract people.
	The high churn rate in the retail space is a key risk since demand for experienced personnel in modern retail will only increase in the near term and long term.	We have a defined system for employee on-boarding, training and development in place.
Technology Risk	Failure to match IT capabilities, scalability and reliability in relation to business requirements will disrupt business continuity.	We engage the best external experts and develop partnerships and in-house expertise in key IT solutions.
Finance Risk	Inability to grow at competitive rates could impact business sustainability	The Companys has a net debt- equity ratio of (0.18) which provides financial comfort.
		Besides, the Company also maintains a healthy cash balance, strengthening its business foundation.

Human Resources

V2 Retail treats its workforce as a precious asset and promotes just and fair HR practices, and employee-friendly policies and processes. V2 Retail believes that its competitive advantage lies within its people. The Company relies on its workforce to promote a diverse and inclusive culture to ensure long-term business sustainability. V2 Retail continues to provide adequate opportunities for professional growth and offers training to enhance the skills and capabilities of its people, empowering them with knowledge to seamlessly adopt ongoing technological interventions and significantly improve value propositions for its customers.

The company has a total employee strength of 2627 as on March 31, 2023.

Internal Control System and Adequacy

The Companys internal audit system has been continuously monitored and updated to ensure that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly. The Audit Committee reviews reports presented by the internal auditors routinely. The Committee makes note of the audit observations and takes corrective actions, if necessary. It maintains a constant dialogue with statutory and internal auditors to ensure adequacy of internal control systems.

Cautionary Statements

This Management Discussion & Analysis report makes forward-looking statements based on certain assumptions and expectations of future events over which V2 Retail exercises no control. V2 Retail cannot guarantee their accuracy nor can it warrant that the same will be realised. Actual results could differ materially from those expressed or implied. Macroeconomic factors such as demand, supply, global economic and geopolitical developments, government regulatory and tax framework, liquidity in the market etc. could impact the operations of V2 Retail.