Maintain ADD on V-MART Retail - Continues to lead apparel universe in recovery - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities

V-MART recovered ~84% (LTL growth at 81%; HSIE: 80%) of base quarter sales (most within our apparel universe along with Trent). Recovery was led by strong festive and marriage season along with early winter sales. Better inventory relevance/control (translating into lower discounting) led to gross margin expansion. GM expanded 40bp to 36.7% (HSIE: 35%). EBITDAM expanded 131bp to 22.1% (the highest since FY14), led by strong cost control. Working capital (WC) remains smartly managed and the company remains net cash positive. Note: VMART recently raised Rs. 3.75bn (for furthering growth aspirations). We revise our FY22/23 EBITDA estimates by ~3% each YoY to account for marginally higher margins, courtesy a struggling ecosystem. Ergo, revise our DCF-based TP to Rs. 2,650/sh (implying 22x FY23 EV/EBITDA)

2QFY21 highlights: Revenue declined 16.4% YoY to Rs. 4.7bn (HSIE: Rs. 4.5bn) - the fastest recovery within our apparel universe given its predominant Tier 2-4 presence and a strong festive and marriage season along with the tailwind of an early winter. LTL growth stood at 81% YoY. Note: footfall recovery (72%) continues to lag top-line recovery (84%). The ASP/average bill sizes/conversion rates remain elevated (+2%/+16%/62% respectively) as consumers continue to prefer purposeful shopping. GM expanded 40bp to 36.7% (HSIE: 35%). EBITDAM expanded 131bp to 22.1% (the highest since FY14), led by strong cost control. Working capital (WC) remains smartly managed and the company remains net cash positive. Inventory levels were down Rs. 1.7bn and -37% on a per store level basis since 4QFY20 - the only apparel retailer to achieve this. PAT declined 18% to Rs. 479mn (HSIE: Rs. 422mn).

Outlook: VMART's 9MFY21 gives a glimpse of how an efficient retailer operates during a crisis. We believe that market share gains would expedite in the post-pandemic world as VMART's strong balance sheet (even so post the Rs. 3.75bn fund raise) meets precariously-placed regional peers (suffering from liquidity challenges). Hence, we maintain our ADD recommendation with a DCF-based TP of Rs. 2,650/sh (implying 22x FY23 EV/EBITDA). FY22/23 EBITDA estimates revised upwards by ~3% each respectively.

Shares of V-MART RETAIL LTD. was last trading in BSE at Rs.2477.95 as compared to the previous close of Rs. 2478.4. The total number of shares traded during the day was 1037 in over 259 trades.

The stock hit an intraday high of Rs. 2496.9 and intraday low of 2423.05. The net turnover during the day was Rs. 2546367.

Source : Equity Bulls

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