Maintain ADD on V-MART Retail - Tops apparel universe in recovery - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

V-MART recovered ~56% of base quarter sales (most within our apparel universe), given its predominant tier 2-4 presence. (HSIE: 60%). GM declined 241bp to 28.8% (HSIE: 30%). Despite the revenue/GM miss, V-MART nearly achieved EBITDA break-even as it maintained its cost of retailing YoY at 34.3% (HSIE: 38.5%). WC remains smartly managed with inventory-led cash release being used to support vendors. Cash generation has improved YoY (- Rs.744mn to -Rs. 174mn). We marginally revise our FY22/23 EBITDA estimates by +3% each YoY to account for higher margins post the pandemic and revise our DCF-based TP to Rs. 1,950/sh (implying 21x Sept-22 EV/EBITDA)

2QFY21 highlights: V-MART's revenue declined 44% YoY to Rs. 1.76bn (HSIE: Rs. 1.88bn) - Highest recovery within our apparel universe, given its predominant Tier 2-4 presence. SSSG stood at -70.6% (YTD-FY21). Recovery was primarily driven by higher operational days (79% vs 34% in 1Q) and could have been steeper but for (1) some extended lockdowns in Sep-20 in UP and Bihar, (2) Spike in COVID-19 cases in Tier 3/4 towns leading to some footfall loss. Bill sizes remained elevated (up 19%). GM contracted 241bp to 28.8% (HSIE: 30%). The retailer nearly achieved EBITDA break-even (-Rs. 3mn; in-line) in 2Q. Pre-IND-AS, EBITDA losses stood at -Rs. 97mn. Net losses stood at -Rs. 190mn (HSIE: -Rs. 293mn) due to higher-than-expected other income. Other income was higher due to rent concessions of Rs. 146mn. Management highlighted that (1) recovery during the festive season is encouraging, (2) employee/rent savings are likely to mean-revert in 2H.

Outlook: As V-MART's lean balance sheet (Net Debt/Equity <0.1x) meets precariously-placed regional competition post the pandemic, expedition in market share gain in favour of the former is a foregone conclusion. This keeps us constructive on the stock. We maintain our ADD recommendation with a DCF-based target price of Rs. 1,950/sh (21x Sep-22 EV/EBITDA).

Shares of V-MART RETAIL LTD. was last trading in BSE at Rs.2011 as compared to the previous close of Rs. 1967.2. The total number of shares traded during the day was 1062 in over 329 trades.

The stock hit an intraday high of Rs. 2015 and intraday low of 1974.1. The net turnover during the day was Rs. 2123021.

Source : Equity Bulls

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