V2 Retail

V2 Retail reported a robust Q2 FY26, with revenue surging 86% year-on-year to INR 708.6 crores and PAT growing an exceptional 3,561% to INR 25.3 crores. EBITDA for the quarter increased by 465% to INR 44.4 crores, with margins expanding from 2.1% to 6.3%. For the first half of FY26, revenue grew 69% to INR 1,340.9 crores, and PAT increased by 185% to INR 55.9 crores, demonstrating strong operational leverage and disciplined capital allocation, with H1 ROE reaching 22.9%.

The company opened 43 new stores in Q2 FY26, achieving a net addition of 70 stores in H1 FY26, bringing the total store count to 259 with 28 lakh square feet of retail space. As of the call date, the total stands at 275 stores. Management revised its FY26 new store target upwards from 100 to 130 stores and aims to open 150 stores in FY27, focusing on underserved rural markets and deeper penetration in Tier 1 and Tier 2 cities, including significant expansion in South Indian markets like Karnataka and Andhra Pradesh.

The recently raised QIP funds are primarily being used to repay INR 135 crores of debt, allocate INR 165 crores for working capital, and INR 100 crores for general corporate purposes. By paying vendors earlier, V2 Retail expects to reduce its average credit days from 50-55 days to 30-35 days, securing a 1.5% to 2% per month bill discount. This strategy aims to make V2 Retail a preferred partner, converting 15-20 vendors into exclusive suppliers and improving gross margins from Q3 FY26 onwards.

New stores are designed to break even from the first month, starting at INR 750-800 per square foot and breaking even at INR 500 per square foot. It takes 2-3 years for new stores to mature. The company maintains its pre-Ind AS EBITDA margin guidance at 8% for the next 2-3 years, acknowledging that rapid new store additions (60-70% new area annually) offset the immediate margin benefits from bill discounting and SSSG of mature stores. The target SSSG for mature stores is 8-10% for the next 18 months.

An analyst raised concerns about high senior management attrition and vacant critical roles. Management clarified that, except for the Head of HR, other positions are not vacant and are largely filled by internal promotions, emphasizing a broad-based management structure with backups. They acknowledged a high attrition rate of 40-50% at the store level, primarily due to minimum wage staff seeking small pay differences, but stated that technology-driven processes and performance-linked variable pay have improved retention.

V2 Retail identifies inventory risk as its biggest challenge, mitigated by rigorous checks and balances, including discounting slow-moving items within two weeks of introduction. This has reduced inventory older than one year from 24% to less than 4%. The company also highlights the risk of selecting wrong store locations, which is addressed by a multi-layered approval process involving area managers, regional managers, retail heads, business development heads, and a core business committee.

The early onset of winter has positively impacted sales, with winter product contribution increasing from 40% to 55% year-on-year. Winter products carry a higher gross margin of 34% compared to 31% for normal products, leading to better sales numbers. The company is gradually increasing its own design contribution by 5% each season, aiming for 40-45% by next summer, to enhance competitive advantage and throughput, while leveraging data to align assortments with customer preferences.