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Resilient performance amid challenging scenario…

V-Mart witnessed a gradual recovery with revenue growth of 6% YoY to | 352 crore in Q4FY21. On a normalised base, recovery rate was at ~88% of pre-Covid levels. Lower footfalls (down 12% YoY), were offset by better conversion ratio (61.1% vs. 55% in Q4FY20) and higher transaction size (| 851 vs. | 790 in Q4FY20). The company had replenished its inventory during the quarter with new summer season wherein full priced sales resulted in gross margins improving 130 bps YoY to 29.8%.

Other expenses increased 18% YoY mainly on the back of higher marketing spends in Q4. Subsequently, EBITDA margins improved 120 bps YoY to 9.5%, with absolute EBITDA increasing 21% YoY to | 33.6 crore. PBT losses narrowed down to | 2.3 crore vs. | 10.5 crore in Q4FY20. V-Mart, during the quarter, added seven new stores taking the total count to 279. The company continues to remain debt free. With the recently concluded QIP, its liquidity position remains intact with cash worth ~| 400 crore.

Gradual opening of markets to aid revenue recovery…

Despite a complete washout in Q1FY21 (84% revenue decline) V-Mart displayed a healthy recovery in H2FY21 (FY21 revenue de-growth of 35% YoY) owing to its strong business model and dominant presence in non-tier I cities (77% of total stores). The management indicated that it was witnessing close to normal demand but a resurgence of Covid cases significantly derailed revenue recovery (currently mere 20-30 stores are operational).

The company expects a gradual opening of markets from midJune onwards, with green shoots from Q2FY21 onwards. Inventory on a sequential basis spiked up sharply (up 44%) in anticipation of strong pentup demand for the summer season before the Covid disruptions. On a full year basis, net working capital days inched up by ~ 19 days YoY to 80 days in FY21. We expect working capital to normalise, going forward (~60 days in FY22E), with revenue recovery from Q2FY21 onwards.

Store addition pace to accelerate in FY22E, FY23E….

Pandemic induced challenges impacted the pace in FY21 with 13 store additions in FY21. We expect store addition trajectory to resume its momentum post Q2FY21 and pencil in 45, 65 new store addition in FY22, FY23E, respectively, taking total count to ~390 stores by FY23E. We expect total retail space to increase at ~19% CAGR in FY21-23E with total area of 3.2 million square feet by FY23E.

Valuation & Outlook

Despite the turbulent scenario, V-Mart has displayed a resilient show with the company generating positive free cash flow (excluding QIP) in FY21. VMart has a capital efficient business model, generating healthy gross block asset turn of ~6x and controlled WC cycle (average NWC days: ~50 days). Factoring in near term headwinds, we revise our revenue estimates downwards by 15% in FY22E.

While pandemic may cause near term challenges, we like V-Mart as a structural long term story to play the unorganised to modern retail shift. We pencil in revenue, EBITDA CAGR of 48%, 58%, respectively, in FY21-23E (on favourable base). We maintain BUY on the stock with unchanged target price of | 3500 (20x FY23E EV/EBITDA).

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