V2 Retail Limited - Rating upgraded and removed from 'Issuer Not Cooperating' category

ICRA has upgraded the rating of V2 Retail Limited (VRL) and removed the same from the 'Issuer Not Cooperating' category based on adequate information received from the client for carrying out a detailed credit assessment.

The rating factors in the weaker-than-expected performance of VRL in the current fiscal, led by sustained pressure on its profitability. While VRL's scale of operations improved significantly by 37%, on a YoY basis in 9M FY2023, the company's operating profitability remained low at 2.8% in the same period (1.6% reported in FY2022) and is expected to remain rangebound in the near to medium term, on account of lower gross margins vis-à-vis the pre-Covid levels. Following the pandemic, there was significant inventory build-up at the stores, which had resulted in a moderation in the company's liquidity profile. The company had funded its working capital requirements through higher working capital borrowings, which along with the moderation in profitability led to a deterioration in its coverage metrics in FY2022 and H1 FY2023. However, Q3 FY2023 onwards, led by healthy recovery in sales and liquidation of the built-up inventory, the company's liquidity position improved as corroborated by lower utilisation of working capital facilities. However, sustenance of the same is yet to be seen. Further, given the company's new store addition plans in the upcoming fiscals, its ability to enhance and maintain a healthy liquidity cushion will remain a crucial determinant of its credit profile.

The ratings continue to draw comfort from the company's position as an established value retailer in the country and the extensive experience of its promoters in the retail sector. Operationally, the company benefits from a healthy share of private label sales backed by backward integration, its wide geographic presence, and established relationships with a wide and diversified vendor base that optimises its cost structure.

The Stable outlook reflects ICRA's expectations that V2 Retail will stabilise its operational metrics and report an improvement in performance in the medium term. Further, the absence of any term debt repayment obligations in the upcoming fiscals is expected to keep the coverage indicators adequate and help maintain a stable financial risk profile in the medium term. The company's ability to scale-up its operations in the face of competition, improve operational indicators, efficiently manage its working capital cycle, and maintain a healthy financial profile will remain monitorable.

Shares of V2 Retail Limited was last trading in BSE at Rs. 87.54 as compared to the previous close of Rs. 90.38. The total number of shares traded during the day was 2350 in over 95 trades.

The stock hit an intraday high of Rs. 91.95 and intraday low of 87.25. The net turnover during the day was Rs. 209822.00.

Source : Equity Bulls

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V2Retail INE945H01013 RatingUpdate