V-Mart Retail Ltd - Research Report

Private Client Research

Rating

Buy

Sector

Retailing

Company

V-Mart Retail Ltd

Retailing


November 21, 2017

Sensex: 33478.35


CNX Nifty: 10326.90

NSE: VMART


BSE: 534976

Reco Price
Rs. 1290.00
Price Target (1.5 - 2 Years)
Rs. 2580.00
Upside
100.00%

Date

November 21, 2017

Sensex

33478.35

CNX Nifty

10326.90

Exchange

Code

NSE

VMART

BSE

534976

Stock Data

CMP (Rs)
1304.70
Face value (Rs)
10
52 Week Range (Rs)
1585.00 - 442.80
Market cap (Rs Crores)
2358.81
Price To Book Value (x)
8.35
P/E Ratio (x)
42.81
EV/EBIDTA (x)
22.55

One Year indexed Stock Performance

V-Mart Retail Ltd Sensex
V-Mart Retail Ltd
Return (%)
1m
3m
12m
36m
Absolute
-7.92
-10.34
189.84
143.78
Sensex
2.99
7.10
29.94
18.15

Shareholders

(in %)
30-Sep
Promoter
54.40
Public
45.60
Others
0.00
Total
100

+91 22 6639 3000

research@stockaxis.com

Strong consumption story to drive retail growth.

Focus on Tier III & IV cities and building internal capabilities:
V-Mart is focused in cluster-based strategy where the company is expanding its footprint in Tier II, III & IV cities. The company currently has 157 stores out of which 16 new stores were added in FY18 out of which 10 new stores were added in Tier IV cities in an attempt to uplift the presence of organized retail in this area.

In order to capture this new customer base, the management focuses on volume and low-priced products to begin with which is in line with this new strategy adopted. This would lead to average selling price (ASP) going forward.

Improving supply chain:
The company is working aggressively on the supply chain piece in terms of improving technology, better warehousing structures and infrastructure. The company is focusing on atomization which would generate a better turnaround time, and minimize the replenishment period to deliver better availability at the store.

Efficient supply chain and inventory management:
V-Mart warehouse is spread over 180,000sqft which caters to its store network. The company is putting efforts to increase efficiency in supply chain and manage inventories, at both the store and warehouse level.

The company has a team of auditors to inspect the stores at regular intervals and provide feedback on store operations, cost management and inventory management. The company also has wide network of registered vendors and suppliers spread across the country, from which they source quality products at the cheapest price. However the company does not own any manufacturing facility and believes in job work manufacturing, which helps them in gaining advantage in terms of product quality and pricing.

Focus in Private labels:
V-Mart is focusing to increase its shares from Private labels’ which is currently at 55%. The company plans to increase private labels’ share to 80% in future to provide the customers with unique products. Going forward this would expand the margins and improve profitability.

Industry

The Indian Retail Sector valued at USD 672 billion is one of the most dynamic sectors in the world. Globally, India ranks fifth in terms of market size, which is growing at a rate of 12% per annum. The Indian retail market can be classified into two categories – organized and unorganized.

The organized retail market is currently valued at USD 60 billion, which is a modest 9% of the sector, while the unorganized retail market holds the rest of the market share.

India's organized retail penetration is much lower compared with other countries such as the United States where the organized retail sector’s penetration of 85%. Food & Beverage holds around 70% of the retail sector, followed by Apparel and Personal Care. As per World Bank's World Development Indicators database published on February 01, 2017, India is the 3rd largest economy in the world in terms of Purchasing Power Parity (PPP), only behind China and US. As per IMF, the Indian economy is likely to grow by 7.2% in FY2018 and 7.7% in FY2019. This shows India's growth potential with respect to Organized Retail Penetration. Healthy economic growth, changing demographic profile, increasing disposable incomes, changing tastes and preferences are the main growth drivers in the organized retail market in India.

Profile

V-Mart was first incorporated as Varin Commercial Private Limited under the Companies Act in 2002 in West Bengal. V-Mart Retail is one of the pioneers in setting up stores across various small Indian towns and cities. The company primarily operates in Tier-II, III & IV cities, with a chain of 'value retail' departmental stores offering apparels, general merchandise and kirana, catering to the entire family. Based in New Delhi, the company operations are spread across northern, western and eastern parts of India.

The company sources its products, including private labels, directly from the regions where such products are widely available or manufactured, to minimize its procurement costs and offer quality products at such costs. The company's strong sourcing capability is backed by an efficient logistics network, which is supported by strong IT infrastructure, systems and processes, thus enabling the company in achieving its concept of value retailing.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

DESCRIPTION Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20
Net Sales 720.20 809.25 1001.73 1200.00 1464.00 1786.08
Growth (%) 12.37 23.78 19.79 22.00 22.00
Total Expenditure 656.76 744.97 915.90 1092.00 1324.92 1613.72
EBITDA 63.44 64.29 85.83 108.00 139.08 172.36
% Margin 8.81 7.94 8.57 9.00 9.50 9.65
Other Income 2.44 1.17 3.09 3.50 3.50 3.50
Operating Profit 65.88 65.46 88.92 111.50 142.58 175.86
Interest 4.17 5.50 6.77 4.00 4.00 4.00
PBDT 61.71 59.96 82.15 107.50 138.58 171.86
Depreciation 4.57 19.09 22.02 26.50 32.00 40.00
Profit Before Taxation & Exceptional Items 57.15 40.88 60.13 81.00 106.58 131.86
Exceptional Income / Expenses -1.82 1.44 0.00 0.00 0.00 0.00
Tax 17.96 14.68 20.60 28.35 37.30 46.15
Profit After Tax 37.37 27.63 39.53 52.65 69.28 85.71
Adjusted EPS 20.74 15.29 21.88 29.14 38.34 47.44
Source: Stockaxis Research, Company Data

Valuation

With increasing penetration of the organized Retail market in Tier II, III & IV cities it is expected that the company would add new stores aggresively. This would improve turnover of both existing and new stores with expansion in margins. We Initiate ‘BUY’ on attractive valuations with Target Price of Rs 2580 based on 54.40x FY20E EPS. The stock trades at 33.50x FY19E and 27.20x FY20E EPS.