4 March 2020
Company Update | Sector: Retail
TP: INR2,700 (+26%)
Upgrade to Buy
Value retailer with a well-run business
Long runway for growth
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
39 / 0.5
2867 / 1604
Financials Snapshot (INR b)
FY20E FY21E FY22E
17.2 21.6 26.5
EBITDA Margin (%)
Adj. EPS (INR)
50.7 62.4 76.7
EPS Gr. (%)
28.5 23.0 22.9
276.9 339.3 416.1
-0.2 -0.2 -0.3
20.2 20.3 20.3
20.8 20.8 20.7
42.4 34.4 28.0
The V-Mart edge – limited threat from national/regional players
25.9 20.0 16.0
Our channel checks across three cities in UP, Bihar and West Bengal indicated
V-Mart commands a strong competitive position in the value retail industry.
Div. Yield (%)
Our recent channel checks and meetings with regional value retailers
corroborated the advantage V-Mart enjoys over national and regional players.
Focus on lower-tier locations with early mover advantage, better product profile
at attractive price points and operational efficiencies appear to be working in the
company’s favor even as consumer spending remains weak.
The company has built a strong brand recall, a wide product assortment and
efficient cost/WC position. This has translated into better footfall/throughput
and lower cost/employee churn versus peers operating at same locations.
V-Mart’s EBITDA has grown only modestly and margin has contracted by 230bp
over FY18-20 due to a sharp fall in same-store sales growth (SSSG). However, we
note that this is more of an industry phenomenon and V-Mart will be quick to
capture opportunities once the operating environment recovers.
The company’s disciplined store expansion over the last five years based solely
on internal accruals has ensured a well-capitalized net cash balance sheet.
We upgrade V-Mart to Buy as it stands to benefit from (a) its strong cost
leadership at a time when regional players are facing pressure, (b) tailwinds from
better monsoon and agricultural output and (c) low SSSG/margin base. Also, the
~32% correction in the stock price from its peak in Aug’18 provides an attractive
entry point, in our view.
The company has a highly efficient cost structure and working capital position
Shareholding pattern (%)
compared to regional players, as reflected in its higher sales throughput,
Dec-19 Sep-19 Dec-18
EBITDA margin profile and cash conversion ratio. Also, the threat from large
national players is limited in that they cater to a different segment with a
different customer profile, product variety and price range. Average selling
price (ASP) and bill size at large national players is almost double, which limits
FII Includes depository receipts
the risk of customer uptrading, particularly as V-Mart operates in lower-tier
Stock Performance (1-year)
cities where customers prefer brands that offer value products at a low price.
Sensex - Rebased
Competition benign in a weak environment
V-Mart has been delivering modest SSSG in recent times. However, according to
our channel checks, this is more of an industry phenomenon than company
specific issue, as evident from the performances of almost all regional and
national players. Most stores we visited were delivering flat-to-declining SSSG
and running 10-15% below targets with stretching working capital. Several
regional players are closing down stores as their aggressive debt-funded
expansion and high working capital led to huge write-down, making such stores
unviable. That said, consolidation of about 200 regional stores in the
northern/eastern belts and a subdued base (with weak SSSG for the second
straight year) point toward return of market stability in FY21.
Research Analyst: Aliasgar Shakir(Aliasgar.Shakir@motilaloswal.com);
+91 22 6129 1565
(Suhel.Ahmad@MotilalOswal.com); +91 22 5036 2611 /
(Anshul.Aggarwal@motilaloswal.com); +91 22 5036 2511
Investors are advised to refer through important disclosures made at the last page of the Research Report.
MotilalOswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.