NZ Retail Limited, a Mumbai based retail start up, was founded by Swami Nathan in 2019 and has rapidly grown into one of India's profitable retail…

NZ Retail Limited, a Mumbai based retail start up, was founded by Swami Nathan in 2019 and has rapidly grown into one of India's profitable retail organization. Today, it operates over 3000 stores across varied formats and across more than 2000 towns in India. The company's core philosophy centres on "inclusion, growth, and building sustainable societal value." It focuses on empowering everyone small vendors, kiranas, manufacturers, consumers by offering choice, value and a quality shopping experience. Company covers a wide range of categories through its Omni-channel model: Grocery & Supermarkets, Consumer Electronics & Connectivity, Fashion & Lifestyle, Wholesale & B2B. NZ Retail Limited represents a vast, diversified and an Omni-channel retail powerhouse in India, blending scale, reach innovation across grocery, electronics, fashion, beauty, pharma, B2B and quick commerce. It aims not just to meet consumer needs but also to revolutionize the retail ecosystem uplifting small businesses and modernizing kiranas while continuing robust expansion and digital transformation. Company continues to innovate across formats and channels - relying on partnerships, new commerce for fashion, quick-commerce scalability, and digital platforms to fuel growth and prepare for an upcoming IPO. In early 2024, NZ Retail pitched to several venture capitalists, highlighting: A projected market size of $ 5 billion in AI-driven fashion retail in India by 2028.A capital-efficient business model with low inventory risk (drop-shipping and vendor-managed inventory)Early-stage profitability at the unit level After several negotiations, Alpha Ventures, a prominent VC firm focusing on consumer-tech startups, agreed to provide funding of 60 crore for 20% equity stake as per following details: Seed Stage Funding -10 Crore Mezzanine Financing -25 Crore Growing Working Capital Needs -15 Crore Before proceeding with the proposed investment, the venture capitalists requested a copy of the latest audited financial statements of the company. They emphasized that the audit report would provide critical insights into the company's financial health, compliance with statutory requirements and internal control systems. The investors wanted to assess the reliability of reported revenues, the accuracy of inventory valuation and the adequacy of disclosures, particularly in the light of the company's rapid expansion and multi-location retail operations. The audited financials were seen as a basic document for their due diligence, helping them evaluate financial risks and validate the company's growth projections before committing to funding. NZ Retail finalized its financial statements for the year ending 31st March 2025. The statutory auditor will be auditing the restated financial statements for the 2 earlier financial years i.e. 2023-24 and 2022-23 for onward submission to SEBI pursuant to their upcoming IPO (Initial Public Offer). Auditors requested for management representation for all the three financial years. On 25th April 2025, the Board approved the financial statements for the F.Y. 2024-2025. The following events happened: On 6th April 2025, a debtor who owed 10 lakh as of 31st March 2025 was declared insolvent.Company declared dividend on 10th April 2025 for the year ending 31st March 2025.Company suffered a massive fire on 9th April 2025 which destroyed one of its main godowns,Company signed an agreement on 27th March 2025 to sell one of its divisions. Regulatory approvals were pending. On 8th April 2025, before financial statements were approved, all approvals were received and the deal was completed on 14th April, 2025. The following adjustments/disclosures were made in the Financial Statements for the year ended 31-03-2025: (i) Adjusted the financial statements for impairment of receivables. (ii) Recognised dividend as a liability in the financial statements as at 31 March, 2025. (iii) No accounting adjustment was made for fire but disclosed the occurrence of fire. (iv) Recognized the sale of assets of the division, but did not de-recognised the liability of the division. As the statutory audit of the company was underway, the Tax Audit under Section 44AB of the Income-tax Act, 1961 was also initiated concurrently. Since many financial assertions and records overlapped, the audit teams coordinated closely to ensure consistency between the statutory and tax audit reports. To improve operational efficiency, reduce human error and streamline inventory movement, the company has decided to invest in Advanced Material Handling Systems (AMHS) and RFID-based inventory scanning machines at its central distribution centers and large-format stores. The management team evaluated several proposals and finally selected an Indian manufacturer offering a comprehensive warehouse automation solution, covering Conveyor Belt systems, Barcode & RFID scanning equipment, Automated sorting and packing stations, Integration with existing ERP (SAP Retail). The new machine will reduce turnaround time in order processing and dispatch, enable real-time stock updates across retail locations and lay technological groundwork for future expansion and warehousing automation. Machinery was purchased for 5 Crore with additional details as per following: Installation charges incurred at buyer's site:20,00,00 paid by the supplierFreight and Insurance paid by the supplier on sale of such goods - 1,00,000 charged to the buyer.Discount of 2,00,000 shown on invoice and agreed upon at time of supply.An interest of 92,000 was later collected due to delayed payment.Subsidy from a non-Government body directly linked to price:25,00,000. During a quarterly performance review, the management of the retail company observed a concerning trend: while certain high-volume products, specifically Product A and Product B, were generating strong sales figures and occupying significant shelf space, they were not contributing proportionately to the company's overall profit margins. Despite appearing successful on the surface, a deeper analysis hinted at potential hidden costs such as high supply chain expenses, frequent markdowns, and increased handling efforts that were eroding profitability. Recognizing the limitations of relying solely on sales volume, the management resolved to conduct a detailed profitability analysis to uncover the true cost-to-serve each product. Their objective was to make more informed decisions around product assortment, pricing strategies and supply chain efficiency and to distinguish between genuinely profitable products and those that merely functioned as "space fillers" on the shelves. This strategic shift aimed to realign the company's focus toward optimizing the product mix for maximum contribution to the bottom line. Company traditionally uses gross margin analysis by deducting the bought-in cost of goods from the selling price to assess product profitability. However, venture capitalists question the effectiveness of this measure, as it fails to consider the significant indirect costs incurred at the organizational level. Now Company wants to move to a more accurate cost allocation approach to support strategic pricing, space utilization and product portfolio decisions.