V-MART - Best play in value fashion segment - ICICI Securities

Key takeaways from V-MART's Q2FY21 earnings: 1) Currently, ~95% stores are operational with sales tracking improving on MoM basis; 2) bundling of festive and early winter season should boost revenues in Q3FY21; 3) working capital stood flat in H1FY21 with inventory and payables declining Rs1bn each; and 4) store addition trajectory continues with seven new store openings in Oct'20, taking total count to 271 stores. V-MART is well positioned to capture growth opportunities in tier 2-4 cities with aggressive store openings and first mover advantage. We like the company's revenue growth potential, timely execution and best-in-class return ratios. We maintain our FY22E-FY23E EBITDA with our DCF-based target price unchanged at Rs2,500/share on Sep'22E. Maintain BUY.

- Revenue declined 44% YoY to Rs1.8bn. The company has lost around 1/5th operational days due to prolonged lockdowns extending into early Sep'20 in its two largest markets - Uttar Pradesh and Bihar. The key apparels consumption trends like higher summer mix led by easywear and loungewear categories, increasing consumer preference for loungewear and increased contribution from kidswear segment continued in Q2FY21.

- Currently, ~95% stores are operational with sales tracking improving on MoM basis. Average selling price (ASP) declined 15% YoY owing to higher athleisure mix; however, transaction size increased by 19% YoY in Q2FY21. V-MART has liquidated largely older inventory and adequately stock up winterwear merchandise across stores. Management mentioned that bundling of festive and winter season along with improving consumer sentiment should boost revenues in Q3FY21.

- Pre-Ind AS 116 EBITDA loss stood broadly flat YoY at Rs86mn owing to strict control on overheads. Gross margin declined 241bps YoY to 28.8% on inventory provision and higher discounting. However, lower employee cost (declined 23% YoY), rent expenses (declined 58% YoY) and advertisements (down 90% YoY) restricted loss at operating level. Post Ind-AS EBITDA (including other income) increased 17% YoY to Rs147mn vs EBITDA loss of Rs44mn in Q1FY21. V-MART received rent concession of Rs167mn in Q2FY21 (Rs190mn in H1FY21) of which Rs1mn netted from rent expenses and Rs146mn. Net loss stood at Rs190mn.

- FCF generation stood at negative Rs528mn post losses at operating level and capex spend of Rs101mn in H1FY21. Working capital remains broadly flat in H1FY21 with inventory and payables declining Rs1bn each in H1FY21. V-MART has closed four stores (two stores on net basis) in H1FY21 with no additional stores planned for closure in H2FY21. The company has opened seven stores in Oct'20 taking its total count to 271 stores. In Sep'20, the company passed an enabling resolution to raise up to Rs5bn to explore various growth opportunities, which is still under evaluation. V-MART has recently appointed Mr. Vineet Jain as its new Chief Operating Officer. He served as a core member of Future group and comes with over 19 years of retail experience.

Shares of V-MART RETAIL LTD. was last trading in BSE at Rs.2000 as compared to the previous close of Rs. 2006.65. The total number of shares traded during the day was 756 in over 225 trades.

The stock hit an intraday high of Rs. 2034 and intraday low of 1950.05. The net turnover during the day was Rs. 1524501.

Source : Equity Bulls

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