V-MART Retail - South India debut via Unlimited - ICICI Securities

V-Mart Retail Ltd (V-Mart) has signed definitive agreements to acquire all the 74 existing running stores of 'Unlimited' from Arvind Lifestyle Brands Ltd (ALBL), a wholly-owned subsidiary of Arvind Fashions Ltd (AFL) for a cash consideration of Rs1.5bn. This acquisition provides V-Mart an access to new South India market enabling the company to have pan-India presence across 229 cities with 356 stores. On boarding ALBL's local stores team and design team will help V-Mart reduce the time taken to develop new market. V-Mart would be sticking to its One Nation One Brand philosophy and is targeting turnaround of Unlimited over the next 2-3 years. Factoring in the impact of acquisition, we increase our FY22E-FY23E EBITDA by 8-11%. Maintain BUY with a revised DCF-based target price of Rs3,950/sh (earlier: Rs3,200). Key risks: Slower recovery in discretionary spends and increasing online competition.

- Valuation seems attractive; V-Mart to pay Rs1.5bn for the assets acquired from ALBL which include running stores, warehouses, leases, less than 1-year old inventory and other current assets of Unlimited business along with the brand 'Unlimited'. The transaction also includes certain contingent payments (2% of the revenue in the first two years and 1% in the third year) based on certain milestones (sales per sqft above a threshold level) achieved post acquisition. The acquisition of 74 Unlimited stores is at a similar cost at which V-Mart undertakes organic expansion. V-Mart invests Rs20mn (Rs10mn capex and Rs10mn inventory) for opening any new store.

- South India debut; pan-India presence: This acquisition provides V-Mart an immediate access to 74 store locations across 6 new states in South India with 0.78mn sqft area which is 34% addition to its current 2.3mn sqft. The company also gets onboard an established warehouse, supply chain logistics, skilled front-end operations team and experienced product development team. The transaction is expected to complete in ~60 days. Post the completion of this transaction, V-Mart will have 356 stores across 229 cities and 25 states. Organic growth guidance of >20% CAGR store addition remained unchanged even with this acquisition.

- Unlimited operates a chain of 74 value fashion retail stores which offer fashion accessories for men, women and children at affordable prices. The retail stores are spread across South and West India with ASP of ~Rs500 (as against V-Mart's ASP of Rs300). These stores are located in high streets and malls with an average store size of ~10,500 sqft (vs V-Mart's 8,000 sqft) with higher exposure to tier 1/2 cities.

- Turnaround plan of Unlimited: Management intends to gradually move to V-Mart brand stores following its One Nation One Brand philosophy from SS'22 collection with sharper price point offerings, better quality fabric, improved assortment, introducing its own private labels and targets to improve footfall / volume growth and productivity of the stores over the next 2-3 years.

Shares of V-MART RETAIL LTD. was last trading in BSE at Rs. 3280.1 as compared to the previous close of Rs. 3355.75. The total number of shares traded during the day was 2499 in over 939 trades.

The stock hit an intraday high of Rs. 3420 and intraday low of 3243.9. The net turnover during the day was Rs. 8359971.

Source : Equity Bulls

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