V-MART Retail - Confident of >20% CAGR in store addition - ICICI Securities

Key takeaways from V-MART's Q4FY21 earnings: 1) Q4FY21 revenues were up 6% YoY owing to strong pent-up demand in key markets and normalcy in consumer behaviour; however, resurgence of covid cases resulted in localised lockdowns impacting demand in Q1FY22; 2) company added 5 stores (net) during the quarter taking the total store count to 279; maintained guidance of >20% p.a. area addition in coming years; 3) average transaction size was up 8% YoY to Rs851, while conversion rate rose 6% YoY to 61%; 4) net cash stood at >Rs4bn as of Mar'21. V-MART is well positioned to capture growth opportunities in tier 2-4 cities with aggressive store openings, first-mover advantage, and strong execution along with best-in-class return ratios. Factoring-in the impact of recent lockdowns, we reduce our FY22E EBITDA though we maintain it for FY23E. Maintain BUY with a revised DCF-based target price of Rs3,200/sh (earlier: Rs2,900) on better cashflows. Key risks: slower recovery in discretionary spends, and increasing online competition.

- Revenues increased 6% YoY to Rs3.5bn owing to strong pent-up demand in key markets (Uttar Pradesh, Bihar, Jharkhand, and West Bengal) and normalcy in consumer behaviour. Customer footfalls declined 12% while conversion rate increased 6% YoY. Resurgence of covid cases from the last week of Mar'21 resulted in localised lockdowns, which significantly impacted sales in Apr-May'21 (only 20-30 stores operational). Management expects gradual opening of markets from mid-Jun'21 with recovery likely from Q2/Q3FY22. It expects online share of revenues to reach 5% over the next 2-3 years.

- Opened seven stores (five on net basis) in Q4FY21 taking the total store count to 279. Management maintained its guidance of area addition of >20% p.a. in coming years. Company is likely to spend Rs1bn for its new warehouse coming up in Gurgaon (first phase to be operationalised by FY22-end).

- Gross margin expanded 130bps YoY to 29.8% on account of improvements in inventory freshness and better full-price sales. Pre Ind-AS 116 EBITDA margin (including operating other income) also improved by ~130bps to 3.5% (our estimate) resulting in 68% YoY growth in EBITDA on a low base. Management mentioned operating margins may come under pressure in the short term due to various cost inflations. Post Ind-AS EBITDA (including 'other income') increased 32% YoY to Rs379mn. PAT loss stood at Rs15mn against a loss of Rs84mn in Q4FY20. Company achieved savings of Rs1bn in FY21 with rent concessions of Rs260mn, reduction of Rs360mn in employee costs YoY, and balance in other expenses.

- Net cash stood in excess of Rs4bn as of Mar'21 on the back of QIP issue of Rs3.75bn undertaken by the company in Feb'21. OCF stood at Rs659mn aided by working capital release of Rs182mn in FY21 while capex incurred was Rs410mn.

Shares of V-MART RETAIL LTD. was last trading in BSE at Rs.2780 as compared to the previous close of Rs. 2766.9. The total number of shares traded during the day was 1947 in over 460 trades.

The stock hit an intraday high of Rs. 2800 and intraday low of 2725. The net turnover during the day was Rs. 5376539.

Source : Equity Bulls

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