Ladies and gentlemen, good day, and welcome to the Vishal Mega Mart Limited Earnings
Conference Call. As a reminder, all participant lines will remain in the listen-only mode, and
there will be an opportunity for you to ask questions after the management's opening remarks.
Should you need assistance during the conference call, please signal the operator by pressing
star then zero on your touch-tone telephone. Please note that this conference is being recorded.
I will now hand the conference over to Ms. Shikha Puri from Strategic Growth Advisors. Thank
you, and over to you.
Shikha Puri:
Thank you. Good afternoon, everyone, and thank you for joining us on Vishal Mega Mart
Limited Q2 FY27 and H1 FY27 Earnings Conference Call. We have with us Mr. Gunender
Kapur, Founder, MD and CEO; Mr. Amit Gupta, CFO.
I hope everyone got an opportunity to go through our financial results and investor presentation
uploaded on the company's website and the stock exchanges. We will begin the call with opening
remarks from the management, following which we will have the forum open for question-andanswer session.
Before we start, I would like to point out that some statements made in today's call may be
forward-looking in nature, and a disclaimer to this effect has been included in the earnings
presentation shared with you earlier.
I would now like to invite Mr. Gunender Kapur, Founder, MD and CEO to give his opening
remarks. Thank you, and over to you, sir.
Gunender Kapur:
Well, thank you very much and a very good evening, ladies and gentlemen. A very warm
welcome to this call. I will briefly take you through the quarter 2 '27 and first half '27 results and
some of the highlights, and then we will open the call for questions.
Starting with quarter 2 '27 highlights, we delivered another strong quarter with revenue from
operations growing by 14% to INR3,399 crores. Our same-store sales growth stood at 5.4%. The
festivals this year have shifted from quarter 2 to quarter 3. This has had an impact of 3% to 4%
on our same-store sales growth. Adjusting for that, our same-store sales growth in Q2 has been
around 9%.
Because of the shift in festivals, the first nine months period will provide a more meaningful
comparison of festive performance vis-a-vis last year. I'm happy to report that we've had a strong
start to the festivals. The festival season is now panning out in Q3, and this has reinforced our
confidence in the demand momentum as we approach Diwali and the wedding season for this
year.
Operating EBITDA for Q2 '27 was INR262 crores, which was a growth of 3.7% over last year
and a margin of 7.7% versus 8.5% in last year. Operating EBITDA growth was achieved despite
low fixed cost absorption during the quarter due to the shift in festive buying to quarter 3 of '27.
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Profit after tax, adjusted for ESOP charges, was INR172 crores, which is a 6.4% growth over
last year and PAT margin of 5.1% versus 5.4% last year, impacted again by operating deleverage
due to the shift in festivals. Our performance was supported by the strength of our own brand
offerings, our customer-first approach, and very disciplined execution.
On the macro front, demand conditions remained steady, despite renewed inflationary pressure
across key raw material categories and a somewhat uneven monsoon. Our differentiated
merchandise, compelling price positioning, and deep understanding of customer needs continues
to resonate with our shoppers, reinforcing the resilience of our business.
I will quickly shift gears to first-half results and highlights for this year. Revenue from operations
grew by 16.4% to INR7,126 crores. Same-store sales growth stood at 7.7%. The shift in festival
has had an impact of 1.5% to 2% on same-store sales growth. Adjusting for that, same-store
sales growth for the first half will be about 9.5%.
Operating EBITDA for the first half was INR649 crores, which is a growth of 12.5% over last
year and a margin of 9.1% versus 9.4% for last year. Again, the margin was impacted by
operating deleverage arising from the shift in festive buying from first half to second half of the
year.
Profit after tax, adjusted for ESOP charges, grew by 15.8% to INR437 crores, a margin of 6.1%
versus 6.4% (This was incorrectly said. Please read 6.4% as 6.2%) for last year. This again was
impacted by operating deleverage arising from the shift in festivals.
We continue to advance our store expansion strategy, adding 26 gross new stores during the
quarter, and 53 new stores during the first half of the year. This takes the total store count to 844
as of September '26 end. And we now have presence in 582 cities across the country.
In quarter 2, we launched the first pilot store of Belong & Co., our new apparel format, catering
to young, affluent urban consumers with a very distinct brand proposition, offering effortless
fashion. Our trading area stood at 1.41 crores square feet. Our private brands contributed 74%
to revenue in first half of '27. Our quick commerce expanded to 781 stores across 532 cities in
the country, and registered users on quick commerce crossed 1.5 crores people across the
country.
Looking ahead, we remain focused on capturing growth opportunities while staying very agile
in an evolving geopolitical and inflationary environment by strengthening our merchandise
offering, enhancing supply chain efficiency, and maintaining disciplined cost management. We
aim to continue delivering compelling customer value and sustainable and profitable growth.
With this, I would request the moderator to open the floor for questions. Thank you very much.
Moderator:
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. We take
the first question from the line of Percy from IIFL. Please go ahead.
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Percy:
Hi. Am I audible?
Gunender Kapur:
Yes, please.
Percy:
Sir, just one clarification. When we say about 3-4% impact of festive, does that mean that this
gets transferred into 3Q, so basically, this 14-15% kind of growth becomes like a 21-22%
because 3-4% gets transferred from one quarter to the other? Is that the correct understanding?
Gunender Kapur:
No. I think, Percy, it means more like we had we've had to report 5.5% approximately samestore sales growth (actual number is 5.4%). Now, this would look like 9% if we were to adjust
for these festivals, because what's happened this year, unlike last year, is that the key festivals,
which is Durga Puja, Dussehra, and Navratras, fell this year in October. Whereas, last year, they
were for example on 2nd of October, where the revenue was recorded in September month. So,
they've just shifted from let's say, September last year to October this year.
Percy:
That was my point, GK, that if in normal circumstances, if the season were not shifted, you
would have done a 9% SSSG. So, if you have done, let's say, 5.5% this quarter, to achieve a 9%
average for 2Q and 3Q, 3Q will have to be sort of 12-13% kind of a SSSG to get to that 9%?
Gunender Kapur:
Exactly, Percy. Exactly. Well, our goal is to achieve double-digit for the full year. So, you're
absolutely right. Q3 will have to be higher than 10%, as you rightly said, for the first nine months
to look like double-digit growth.
Percy:
Understood. And secondly, on gross margin, we haven't seen much of an impact yet, maybe
because you're still held prices with the vendors. Now, going into Q3, I'm sure that the vendors
will ask for a price hike given that inflation has become persistent. So, what kind of sort of gross
margin impact do we see going ahead in 3Q, 4Q?
Gunender Kapur:
Percy, we have accounted for all that, and we've been able to maintain our gross margins on
account of cost reengineering across the board. And I must say that all the vendors are charging
higher prices now. So, therefore, we do not see any material impact further going into quarter 3
and quarter 4 of the year.
Percy:
So, even if crude remains at 100 for the rest of the fiscal, we still believe that we would able to
roughly hold Y-o-Y margins in 3Q and 4Q at a gross margin level, at least?
Gunender Kapur:
That's right.
Percy:
Got it. Okay, that's all for now. I'll come back in the queue if I have any further questions. Thanks
and all the best.
Gunender Kapur:
Thank you, Percy.
Moderator:
Thank you. We take the next question from the line of Nihal Mahesh Jham from HSBC. Please
go ahead. Nihal, please unmute your line and proceed with your question.
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Nihal Mahesh Jham:
Yes, hi. Good evening. Am I audible?
Gunender Kapur:
Yes, please.
Nihal Mahesh Jham:
Yes. Good evening, GK and Amit. Two questions. The first one was just on the results. If I look
at the employee cost, there was an increase of just around INR10 crores versus Q1. So, fair to
understand this is mainly related to the ESOP expenses or it is also the impact of minimum
wages and you can just call that out?
Amit Gupta:
So, Nihal, minimum wage increase happened in Q1, so there is no incremental impact on account
of that. The increase in employee cost versus last quarter is on account of two things. One is the
incremental ESOP cost, and second is the number of new stores that we have opened in the last
two quarters.
Nihal Mahesh Jham:
Got that. That's very clear. And the second question was in the opening remarks, you did mention
about the fact that at least the festivals started well. Just to understand, with a lot of discussion
around El Niño and maybe some impact on rural spending, wanted to understand, are you seeing
any initial signs of any moderation? Just double-checking that fact with you.
Gunender Kapur:
No, not quite. We are not seeing any moderation in terms of consumer and customer demand.
As I mentioned, the festive season for this year started now, and we've experienced some part of
that with Puja in East, which fell on 20th of October, and Dussehra in South, which again fell
on 20th of October, and the Navratra festival. So, we've not quite seen any moderation as such.
Nihal Mahesh Jham:
Very clear, GK. Just one quick final thing is that you did highlight in the analyst meet about the
smaller format stores which you started piloting in Haryana and UP. Do you have any specific
targets on the number of stores of that you want to open this year?
Gunender Kapur:
Firstly, let me tell you that I'm happy to report that we have 18 such stores now. We have further
added two stores in quarter 2. Both, obviously, in UP and Haryana. So, as we stand today, we
have 18 small format stores. I may just use this opportunity once again to clarify that the small
format stores are relevant only for UP and Haryana at the moment, because in all the other states,
we have significant opportunity, even today, to open a large number of the normal format stores,
you know, our 18,000 square feet stores.
So, as I had mentioned earlier also, once the opportunity for the 18,000 or the large format stores
starts diminishing in a state, only then will we go and open the small format stores. Otherwise,
our first priority is to maximize the number of large format stores in every state in India. So,
we're making good progress. If I were to look at the national opportunity, there would be an
opportunity to open upwards of 3,000 such stores across the entire country in all the states.
Nihal Mahesh Jham:
Very clear. Thank you so much and wish you all the best.
Gunender Kapur:
Thank you.
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Moderator:
Thank you. We take the next question from the line of Harit Kapoor from Investec. Please go
ahead.
Harit Kapoor:
Yes, good evening. First question is on the pricing. So, if you could just indicate, what is the
broad level of weighted average price increase that you would have taken to kind of pass on this
level of inflation in Q2 as well as early Q3 in the context of the fact that most of your pricing
that you take, at least initially, doesn't come at the lower price points?
You hold the bottom price point. So, just wanted to get a sense on what's the level of pricing.
And incrementally, post festive, is there would you assume there would be a requirement for
another round assuming you don't want to touch the pricing in the festive?
Gunender Kapur:
So, you're absolutely right. We had said this earlier that at the opening price points, we are not
taking any price increases, because our opening price point customers are the most vulnerable
amongst all our customers to inflationary pressures. At the mid-price points, there've been very,
very few price increases.
All our price increases have largely been on the higher price points. We do not see any need to
take further price increases at this stage. And at this stage, there is absolutely no plan to tinker
with the pricing, even beyond the festive season.
Harit Kapoor:
Got it. And the second bit was, are we seeing any kind of regional differences in terms of growth
outcomes on a like-to-like basis? This is from the context of the fact that you know rainfall has
been challenging in certain parts of the country. Maybe the demand trends are a little different,
one region versus the other. So, if you have any kind of qualitative, quantitative thoughts on
your growth, are you seeing any differences regionally? That's my second and last question.
Thank you.
Gunender Kapur:
So, I would say that we've not quite seen any demand challenge anywhere. It's been quite even
across the country. I must confess that what has been somewhat uneven is the rainfall across the
different states in India. And, therefore, the very temporary disruption that you have for a couple
of days when it's raining heavily, for example, in Northeast in certain months and so on, that
does impact the revenue. But that's a very temporary one or two-day phenomenon. But the
fundamental demand is quite consistent across the country.
Harit Kapoor:
Got it. Thank you. Wish you all the best.
Gunender Kapur:
Thank you very much.
Moderator:
Thank you. We take the next question from the line of Videesha Sheth from Ambit Capital.
Please go ahead.
Videesha Sheth:
Hi. A couple of questions have been answered. Just two more from my side. One is, when I look
at the rentals that have I mean the growth in the rentals that was there in the first half, it is quite
subdued versus the retail area addition. Now, one aspect could be addition of stores in smaller
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town classes, but is there any element of rental renegotiation for existing stores that's being
undertaken?
Gunender Kapur:
No, there is no significant element of the rental renegotiations. Your observation is absolutely
correct. It is showing or demonstrating the fact that a large number of new stores have opened
in Tier 2 and Tier 3 towns.
Videesha Sheth:
All right, so we can expect a similar difference between the growth in rents versus vis-a-vis the
growth in the retail area addition going forward?
Gunender Kapur:
Absolutely.
Videesha Sheth:
Got it. And the second question was on inventory. What would have led to the improvement in
inventory levels considering that ideally there would have been some stock up before the festive
and this is when I compare 1H versus 1H?
Amit Gupta:
No, Videesha, so there is no material change. It is just the impact of shift in festivals from quarter
2 to quarter 3. Otherwise, there is no change compared to last year.
Videesha Sheth:
So, Amit, where I was coming from is that ideally if I just calculated inventory days, it would
ballpark be 65 in the base period versus 59-60 in first half of FY27. So, is there any particular
reason why?
Amit Gupta:
Videesha, last year, by end of September, the inventory build-up has already happened. But this
year, there is three weeks shift in festival, so obviously that build-up has happened later.
Videesha Sheth:
Build-up happened later. Okay. Got it. All right. And last one, if I may, now it's just been one
odd month for Belong & Co., but any initial feedback or that you'd like to share on the same?
Gunender Kapur:
Well, the initial feedback, I can only share with you some qualitative anecdotal feel that I have
from the store. People are loving the merchandise. It's very early days, but our conversion of
footfall into the store into purchase is north of 50%. So, it's very, very encouraging. And whilst
it's just been a month, we have seen customers coming back to the store to buy more stuff.
So, we are very encouraged, although we knew that our merchandise is very, very contemporary,
and very fashionable, and very relevant for the young across the country, but we are getting more
and more confidence around that.
Videesha Sheth:
Got it. That was useful. Thank you.
Moderator:
Thank you. We take the next question from the line of Prerna Jhunjhunwala from DAM Capital
Advisors. Please go ahead.
Prerna Jhunjhunwala:
Thank you for the opportunity. My first question is on gross margins. This quarter, share of
apparel and GM was higher, largely this could be on account of shift of festive season to Q3.
While that may, be unfavorable in Q3 going forward, largely because of GM and FMCG
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purchases during festive season. So, could there be a further decline in gross margins which we
will have to take, which we could see going forward due to shift in festive season impacting our
margins temporarily, is that possible?
Gunender Kapur:
No, not at all, Prerna. It's, in fact, the other way round. The two festivals that I mentioned, Puja
in the East and Dussehra in the South, these are both essentially clothing festivals. People buy a
lot of clothes. In Puja, the clothing purchases go up very significantly.
So, since the festivals fell in the third quarter, we are going to see a significantly higher bias
towards apparel in quarter 3 vis-a-vis quarter 2. Diwali, which is essentially a general
merchandise and FMCG festival, is going to be in quarter 3 this year, and it was in quarter 3 last
year. Amit, you want to add anything to that?
Amit Gupta:
Absolutely right. So, Prerna, what you see a 30 bps drop, compared to last year on gross margin,
out of that, 20 bps is on account of shift in apparel business from Q2 to Q3.
Prerna Jhunjhunwala:
Okay. And we actually saw an improvement in apparel mix this quarter on a Y-o-Y basis. So,
this could be on account of what reasons? It's just a follow up on this?
Amit Gupta:
I'm not too sure where you are looking at it, but as we have explained it earlier, this quarter, Q2,
because of shift in festival, actually, apparel mix is lower compared to last year. Yes, I mean
that's the shift of apparel business. So, the right way to look at it is that, a large part of business
has shifted from Q2 to Q3, and most of that is apparel only.
Prerna Jhunjhunwala:
Okay, understood. And the second question is on Belong and Co., Belong format. Just wanted
to understand, what are your plans over here? How much store openings can we see for this
format in this year, and what would be your store opening target for this year as a whole for both
small format, Belong, and Vishal Mega Mart?
Gunender Kapur:
So, Prerna, at this stage, on Belong & Co., we are still learning. We've opened a pilot store. Our
future plans will depend entirely upon the experience that we have in a few stores that we will
open this year for Belong & Co. We are on a learning curve. I'm sure there's lots to be learned
for us before we start rolling out this format. So I will at a future date come back to you on the
Belong & Co. question. Otherwise, on the large format and the small format, we are quite
confident of our guidance of opening more than 100 stores this year.
Prerna Jhunjhunwala:
And in this, the small format stores should it see an increased opening or we should assume
smaller number on this format?
Gunender Kapur:
So, the number will continue to be lesser than the large format, because, as I've mentioned the
small format stores are relevant, at this stage only for UP and Haryana, whereas the large format
stores we are opening in all parts of the country. And specifically we are expanding into states
like Kerala at a fast pace. So, I think it will be more biased towards the larger format stores.
Prerna Jhunjhunwala:
Understood. Thank you and all the best.
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Gunender Kapur:
Thank you.
Moderator:
Thank you. We take the next question from the line of Rahul Agarwal from Ikigai Asset. Please
go ahead.
Rahul Agarwal:
Hi, good evening. Couple of clarifications. One is on the newer store additions, GK, how should
we think about it more in the next 2 to 3 years? I understand absolute targets are about more than
100 stores this year, but should we think it as a percentage basis that your retail area should grow
at least 13%, 14% every year or should we work with 100 stores additions per year? This is more
medium term.
And second is on the margin side, I think we've discussed it in the past, but, again from a next 2
to 3-year perspective most of the investments will get into for growth and hence not a very high
operating leverage is what we should expect, let's say, in next 2 to 3 years. So margins should
be very steady state when we compare it to last year, fiscal '26, going up to '28 and '29. So if you
can just clarify on these two questions? Thank you.
Gunender Kapur:
Good. Thank you very much. On the new stores, our endeavor would be to open 100-plus stores
every year. And every year we would target to beat the previous store opening count. So, while
I would say that, at this stage we would urge you to look at the absolute number of stores, but it
will keep accelerating every year from the previous year.
The endeavor, of course, is to open as many stores which are profitable and viable in a particular
year. Just to remind ourselves we have a clearly identified universe of 2,000 large format stores
which we can open. And at this stage, we are at 850 odd. So there is a significant white space
and runway for growth.
And, as you know, we are quite profitable and we have significant cash on our balance sheet.
So, we will maximize the number of store openings, both for the large format and for the small
format in UP and Haryana. So I would urge you to think about it in that fashion. And I can only
assure you that we will open more stores every year as compared to the previous year.
And the number would be 100-plus and then the next year we would try to make it 100-plusplus and in the following year, 100-plus-plus-plus. So I hope that is a satisfactory response, but
that is the way we are approaching it. We are quite determined that the new stores should not be
dilutive in any which way. They should be as profitable as our stores have been and that we do
not waste any capital in opening a large number of new stores and then shutting them.
Rahul Agarwal:
Got it. And on the margins, GK?
Gunender Kapur:
Margins, I would say that, see, we've been benefiting from operating leverage consistently across
the board. Our endeavor would not be to improve our gross margin because there we have said
a few times publicly that whatever operating leverage we generate on the gross margins, we
would reinvest that money into improving the quality of our products every quarter and we've
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been doing that every quarter for quite a few years now, and that is what creates a virtuous cycle
of growth for us.
But on the EBITDA margin, we would see an improvement every year, generally speaking, I'm
saying, because our growth would be double digit, whereas our cost inflation at the store level
would be 6% to 7%, and that would probably improve our EBITDA margin by 30 bps every
year.
Rahul Agarwal:
Got it. Thank you so much, and festive greetings to both of you. Thank you. All the best.
Gunender Kapur:
Thank you very much. Really appreciate that.
Moderator:
Thank you. We take the next question from the line of Vaibhav Muley from Haitong Securities
India. Please go ahead.
Vaibhav Muley:
Hi, thanks for the opportunity. Congrats on a good set of numbers, GK and Amit. My first
question was on our store addition strategy. We have added 25 (net stores) stores in this quarter,
out of which I believe 23-odd stores are into newer cities, and majority of store additions have
been into Southern market.
So, just wanted to get more clarity in terms of how are we looking at adding more stores, whether
we are planning to penetrate deeper into existing markets, or focus will remain on entering into
newer cities, going forward. And how much focus remains on South as a market, and particularly
which states where we are planning to expand our footprint? That's my first question.
Gunender Kapur:
Okay. So I can give you a quick breakup of our new stores. We have opened 26 (gross stores)
new stores in quarter 2, of which 15 have been in South India, as you rightly mentioned. 5 of
these or rather 6 of these have been in Kerala, where, as you know, we are expanding rapidly,
and we now have a count of 35 stores, but our ambition is much bigger than this.
Of the 26, another 5 stores have opened in North India, where we've opened one large format
store in UP, one in Haryana, one in Rajasthan, and one in Himachal. And 4 have been in East
India, and 2 have been in Western India. So, this trend will continue or further accelerate.
So, any new state where we are expanding rapidly will see the highest number of store openings
in any given quarter, but, at the same time, we will continue opening stores in all parts of the
country. Secondly, I may just also tell you that, as I mentioned earlier in a response to another
question, 24 of these 26 have been in Tier 2, Tier 3 cities.
We've added 23 new cities all over the country. So, I would say that this trend will continue.
When we go to a new state, there will be a somewhat disproportionate focus on that, but we will
continue to strengthen our performance in every part of the country, every quarter.
Vaibhav Muley:
Understood, sir. Just a follow-up on this. Any plans to get into larger Tier 1 markets in future?
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Gunender Kapur:
Yes, of course. We are, as you know, we are doing a large pilot in Maharashtra and Gujarat, and
as a part of that process, we opened stores in Ahmedabad. We are opening a store in Baroda.
We've opened a store in Surat. We have opened stores in Pune. We are looking at Kolhapur,
Sangli, Shirdi. Yes, of course. When we go towards new state, we will open stores across the
board.
Vaibhav Muley:
Perfect. My second question was on our margins. You mentioned that you have reworked on
your price architecture to protect gross margins during the inflationary environment. Does this
imply that next year, when the inflation normalizes, we can start seeing benefit on the gross
margins front, which ideally we can pass on to consumer to generate better value, and that will
help us to ideally improve our EBITDA margins via better same-store sales growth? Is that the
correct way to look at it?
Gunender Kapur:
See, I may just clarify that we have not significantly altered anything. What I said is that we
have not taken any price increase on the opening price points. As you know, opening price points
are our lowest price points, and typically, our customers who buy the opening price points are
the relatively less affluent of our customers. So, despite the inflationary pressure, we have not
taken any price increase there, at all, across all our businesses.
In the mid-price points, we have taken very, very few price changes. All the price changes are
directed towards the higher price points, where our customers are, relatively speaking, the more
affluent customers. That is to ensure that we protect the most vulnerable sections of our
customers from the impact of inflation.
Now, you know that 75% (It is an approximate number, 74% as on H1FY27) of our revenue is
through our private brands. Therefore, we have the ability to protect our least affluent customers
from the impact of inflation. Now, firstly, I hope you are right that we will see the inflationary
headwinds somewhat diminish in the next one year. If that were to happen, we would reinvest
that money into further either improving the quality of what we are selling, or passing it on to
our customers, especially at the opening price point levels. We would not want to inflate our
gross margin. Our EBITDA margin will get increased by operating leverage, where our growth,
same-store sales growth, is higher than the cost inflation.
Vaibhav Muley:
Understood, sir. That's perfectly clear. Thank you so much, and all the best.
Gunender Kapur:
Thank you very much.
Moderator:
Thank you. We take the next question from the line of Jignanshu Gor from Bernstein Research.
Please go ahead.
Jignanshu Gor:
Hi, GK. Hi, Amit. Just two quick questions. I know we've touched upon the store addition and
area addition across quite a few folks. So, just a different lens on this. Over the last 3 years, our
area addition has trailed our store additions, right? So, if, let's say, for example, last year, our
store addition was 14-plus percent in percentage terms, the area addition was only 9.8%.
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And the reason seems to be beyond the addition of just small format stores. It seems as if the
overall size of our larger stores or normal stores is also reducing. So, is this the right reading?
And should we see this trend stabilize at this point, at some point? Or do we expect retail area
addition to trail store addition? And what do you prioritize for? Do you prioritize retail area
addition or store addition? I think that was my first question.
Gunender Kapur:
Yes. Okay. So, I'll take that on. See, firstly, our retail area addition and store addition are very
deliberate decisions, and let me give you a few examples of that. When we went to Kerala, we,
from our original estimate, have almost doubled the number of new stores that will open, because
we discovered that Kerala is not disaggregated large cities with distances of 50 kilometers to
100 kilometers between them. It's an almost contiguous state, where there is no gap between one
city and the other. And, therefore, the population is spread all over the state of Kerala.
So, we decided to double the number of stores, so that we are always close to everyone, but
reduce the size of the stores. So, it was quite a deliberate decision, and we are very happy about
that, because we are going to be probably the most differentiated and convenient shopping option
for majority of the people in that state, much more than anyone else that we are aware of.
Now, secondly, we went into a large pilot into Gujarat and Maharashtra. Now, what we know
about Gujarat and Maharashtra is that the minimum wages in the state are the highest, the
electricity unit cost is the highest, and the rental costs are the highest in the country. But they
are highest for a reason, which is that these are very affluent states compared to the other states
in India.
Therefore, our hypothesis is that from a lesser area, we can do more revenue, because people are
more affluent and more densely packed into an area, and thus we can make the P&L as profitable
for ourselves or as any other part of the country. So, that's our hypothesis. I'm of the view that
it's too early for us to come to any conclusion, but we are encouraged by what we've seen so far.
So, again, it is because of that hypothesis that we are opening somewhat smaller stores in Gujarat
and Maharashtra.
And lastly, yes, as I mentioned earlier, 24 out of the 26 new stores that we've opened this quarter
are in Tier 2 and Tier 3 cities, and these cities, because of their lesser population, are viable for
a certain area. And, therefore, the stores which have been opened in these places would be, by
definition, smaller in size. So, it'll all be based on where we are opening the stores.
We are quite keen to open 18,000 square feet stores where they would be viable. Equally, if
there are places or more expensive states, I gave some examples, where in a 15,000 square feet
store, we can, with a higher cost structure, admittedly, do the revenue of a 18,000 square feet
store, we will do that.
Jignanshu Gor:
Sure, GK. That's very helpful. If I were to push this further and say, like the guidance you've
given for a 100-plus stores and then increasing that every year by a little bit, is there a guidance
that you have for your own team for area addition, or do you solve for stores?
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October 21, 2026
Gunender Kapur:
I will firstly solve for stores. I'm absolutely clear that the area of the store would be determined
backwards from the catchment and the city where we are opening the store, because it is our
belief that we must have 100% viable and profitable stores.
Jignanshu Gor:
Fantastic. That's excellent. Thank you so much, GK, for the detailed explanation.
Gunender Kapur:
Thank you.
Jignanshu Gor:
Changing track, my second question is on Belong & Co. Just wanted to understand your
perspective of what use case for a user are we trying to solve with this? And maybe it will be
helpful if what do you consider as the core competition for that brand, the way you want to
position it to consumers? If you can shed some light on that, it'll be helpful.
Gunender Kapur:
See, I can definitely shed some light on who are the folks that we are going to serve with Belong
& Co. and what is our differentiation. Who we are competing with will become somewhat
obvious from my response.
So, we are finding that there is a segment of young customers, largely metro-based at this
moment, more affluent than the average customers in the country, they are becoming bigger, and
they are seeking more aspirational offerings and more fashionability in the merchandise. But the
aspirational content of the benefit is also terribly important for them.
So, we want to play in every significant opportunity that the clothing market offers. So, that's
why we've launched this pilot store. So, it's more urban, more metro-centric, more affluent
customers, higher price points, but significantly high on fashionability compared to even the
international standards. And, yes, those are the customers, and we see these customers all around
us in all our metro cities and large towns. So, those are the folks that we are serving.
You could argue that there are brands in metros and large-town India with store counts of 20 to
30 who serve these customers. So, I suppose that would be the kind of competition that we are
envisaging. But the larger goal is to ensure that every significant opportunity which is emerging
in the country and can become very significant in the future, we want to explore that, and we
want to be positioned ahead of schedule to participate in a big way in that opportunity.
Jignanshu Gor:
That's very helpful, GK. Again, thank you. Wish you and the team all the best for the festivities.
Gunender Kapur:
Thank you very much. Likewise, wish you and family all the best.
Moderator:
Thank you. We take the next question from the line of Devanshu Bansal from Emkay Global.
Please go ahead.
Devanshu Bansal:
Hi, sir. Good evening. Thanks for the opportunity. GK, you mentioned that you're not seeing
any moderation in consumer demand, right? So, wanted to check, as in inflation is sort of real,
so how is the consumer responding to it? Is there any noticeable shift towards your private labels
or maybe consumers are purchasing more staples and lower discretionary, any light or comment
that you can sort of help us better understand this?
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Gunender Kapur:
Oh, great. It's a great question, and I must clarify what I've said. See, I am not making a generic
comment that our customers are, generally speaking, not going to get impacted by inflation.
Everyone is going to get impacted by inflation. But if you see what we have done with our
pricing, because of our pricing, we are cushioning our customers from the impact of inflation.
So, for our customers, on the opening price points, there's no price increase. There's no inflation.
On the mid-price points, there is no inflation because we've not taken price changes there. It's
only in the higher price points that we have tinkered with our pricing, again, in a thoughtful
manner.
And therefore, what I believe is that our customers will not have any need to adjust their spends
because of the raw material inflationary pressures, because through our products and private
brands, to the extent that it's possible, we are cushioning that. But it is not my submission that
there is no price elasticity of demand. Inevitably, there is price elasticity of demand, and it is
also seen in our numbers for even this quarter.
For example, in this quarter, quarter 2, almost all our growth has come through market share
gain and not through our existing customers buying more. I have mentioned on the earlier calls
that we have three sources of same-store sales growth. One is market share gain. The second is
our existing customers buying more, and thirdly is premiumization.
In this quarter, quarter 2, as we had expected, and as we've seen earlier also in these inflationary
times, that our same-store sales growth is largely because of market share gain, and that is
exactly what's happened in quarter 2 also.
Devanshu Bansal:
Got it, sir. Very, very helpful. Secondly, GK, you did mention that there is operating deleverage
in the business just because of the festive shift. But our employee expenses up around 25%, this
is excluding the ESOP cost, and even adjusted for festive shift, the top-line growth would have
been closer to 18-odd percent, right? So, I guess there is some gap between top-line growth and
increase in employee expense. So, going ahead, do you expect this to continue or there are levers
which can help you sort of beat this headwind in the business?
Amit Gupta:
Yes, Devanshu, so as you would have heard us saying earlier that this year, there is a significant
increase in minimum wages, and that is reflecting in the numbers as we speak. But we haven't
seen any further increase in minimum wages in quarter 2. So, obviously, compared to last year,
this year, we're going to see an elevated employee cost. But, as we have called out earlier also,
we look into each and every line item in detail, and ensure that whatever levers are available, we
deploy and make sure that the impact is minimized.
Devanshu Bansal:
Got it. So, Amit, just a small follow-up here. So, at what level of SSSG do you feel that we can
sort of deal with this higher employee expense? Maybe does that 10% need to be 12%, maybe,
to sort of help you protect your margins
Amit Gupta:
Anything between 8% to 10% is good enough to offset this impact. This quarter, it is looking
elevated because it has an impact of new store additions, increase in minimum wages, plus shift
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October 21, 2026
in revenue from Q2 to Q3. But, as we get into the subsequent quarters, the percentages will look
all right.
Devanshu Bansal:
Got it. Got it. Just last one from my end. The cash reserves are pretty high, right, for us, even
higher than the current capital which is invested in the business. The store opening target that
we are sort of sharing can easily be sort of sufficed by internal accruals that we are generating.
Checking if you could share some medium to long-term growth avenues which can sort of help
consume this large cash on the balance sheet?
Gunender Kapur:
So, you know, I'll respond to that in two parts. Firstly, and upfront, I must state that our board is
looking at the cash reserves that we have on our balance sheet to ensure that what is the best way
to deal with that, while ensuring that the business is never starved of cash for growth or exploring
capability and capacity improvement.
I can just throw some light on the deployment plan. As I mentioned, firstly, we are going to open
more stores every year as compared to the earlier year. You've heard us speak about the small
pilot that we've launched with a new format. Of course, depending on the response and our
learnings, we would need further capacity expansion there.
Thirdly, we have commissioned a fully automated, very large warehouse in North India. We
have plans to commission such warehouses in East India next, after that in South India, and the
last in the Western part of the country.
Further, I'm very happy to report that our quick commerce initiative is making good progress,
and we are operating at a standard which is world-class in terms of delays and fill rate now. And,
therefore, we have further decided to invest in advertising and digital media aggressively now,
and that has already started from Delhi. It'll get extended to all parts of the country very soon.
So, we have several opportunities to continue to invest very productively in the business, and
there are several opportunities for us. Having said that, I would say that our board is, as we
speak, engaged with this entire issue of the cash that we have on the balance sheet. And as and
when there's a conclusion, we would be happy to come back to you and report that.
Devanshu Bansal:
Thank you so much, GK. That's very insightful. Thank you so much.
Gunender Kapur:
Thank you.
Moderator:
Thank you. We take the next question from the line of Utkarsh Nopany from Anand Rathi Shares
and Stock Brokers. Please go ahead.
Utkarsh Nopany:
Yes. Good evening, sir. Sir, I just need one clarification regarding your pricing strategy. So, if
we assume that the inflation pressure continue to persist for the coming quarters, so is it fair to
understand that we plan to continue not taking any price hike in the lower price point category
product, and partially taking price hike in the middle price point, and fully pass it on at a higher
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price point? And what proportion of our revenue comes from the lower, middle, and the premium
price point, if you can guide us, sir?
Gunender Kapur:
So, as I mentioned that at the current level of inflation, we do not see any reason to take further
price increases in the future. And the second So, whatever we've done, we've done, and that's
good enough. About 18% to 20% of our revenue would come from the opening price points.
About 24% to 25% of our revenue comes from the highest price points, and the balance lies in
the middle, about 50%.
Utkarsh Nopany:
Okay. And sir, if the inflation pressure persists, so we are open to take the price hike at across
the price point. Is that fair understanding?
Gunender Kapur:
No, it is not a fair understanding at all. I am absolutely committed to protecting our opening
price points. I'm Further, I'm saying that at the current level of inflation, our business does not
need any further price tinkering. Whatever had to be done has been done. I want to maintain a
stable pricing environment, and not expose our customers to volatility in terms of our pricing.
Utkarsh Nopany:
Okay, that's helpful. So, like with this pricing strategy, you expect the gross margin to be stable
on a Y-o-Y basis in the second half?
Gunender Kapur:
Yes, please.
Utkarsh Nopany:
Okay, thanks a lot, sir.
Gunender Kapur:
Thank you.
Moderator:
Thank you. Ladies and gentlemen, we take that as the last question, and conclude the questionand-answer session. I now hand the conference over to the management for their closing
comments.
Gunender Kapur:
Well, firstly, thank you very much for your presence in this meeting, and for your questions. I
really appreciate the couple of hours that you've chosen to invest with us. It is indeed very
inspiring and encouraging for us. I always feel energized after our meetings, because I find your
support and positivity to be energizing for me and all my colleagues in the business.
And I look forward to catching up with all of you, either one-on-one or at the next investment
conference or wherever, and till that time, bye, take care, all the very best, and I look forward to
the next opportunity.
Moderator:
Thank you, sir. On behalf of Vishal Mega Mart Limited, that concludes this conference call.
Thank you for joining us. And you may now disconnect your line.
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