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Healthy liquidity to support growth aspirations…

About the stock: V-Mart, having over the years built its fortress in non-tier I cities, is well poised to capture market share in the growing ~| 2.5 trillion value fashion industry. The company enjoys strong moats that would provide an edge over increasing competition in tier III-IV regions.

* V-Mart follows a cluster based approach of adding stores within a radius of 50-100 km. This gives it better economies of scales, supply chain efficiencies and better understanding of fashion needs of the specific region

* The company has over the last two years expanded its reach in the interior parts of the country by opening stores in tier IV cities (~12% of total stores)

Q1FY22 Results: Covid induced lockdowns weighed on the performance with revenue recovery rate plunging from ~88% in Q4FY21 to ~40% in Q1FY22.

* On a low base, revenue grew 127% YoY to | 177.4 crore (~40% of preCovid levels)

* Reported EBITDA loss of | 2.0 crore in Q1FY22 (Q1FY21: (-) | 5.8 crore, Idirect estimate: | (-) | 3.0 crore)

* Other income came in at | 4.5 crore (Q1FY21: | 1.4 crore) owing to higher cash balance. PBT losses were at | 38.5 crore (Q1FY21: (-) | 45.4 crore)

What should investors do?

V-Mart has been a consistent compounder with the stock price appreciating at 45% CAGR in the last five years

* We maintain BUY recommendation on the stock

Target Price and Valuation: We value V-Mart at | 4100 i.e. 22x FY23E EV/EBITDA.

Key triggers for future price performance:

* 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 62%, 66%, respectively, in FY21-23E (on a favourable base)

* Recent acquisition of ‘Unlimited’ store brand (74 stores) will enable V-Mart to cater to the fashion needs in the western and southern markets of India (where V-Mart has a minimal presence)

* We expect total retail space to increase at ~19% CAGR in FY21-23E with total area of 3.2 million square feet by FY23E (excluding Unlimited stores)

* Robust liquidity position (| 335 crore as on Q1FY22) to fund store capex requirements and investments towards ‘Unlimited’ format.

Alternate Stock Idea: Apart from V-Mart, in our retail coverage we also like Trent.

* Inherent strength of brands (Westside, Zudio, Zara) and proven business model position Trent as a key beneficiary of economy unlock theme

* BUY with a target price of | 1100/share

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