IGI Logo

VMart acquires Limeroad.com; enters online marketplace space

* Vmart announced acquisition of Limeroad.com, a vertical online market place catering to the fashion segment, for INR670m (1x P/Sales on FY22).

* Limeroad.com will operate as an independent entity under the V-Mart label and its CEO Suchi Mukherjee (founder) will continue her role with Ankush Mehra (co-founder), who would continue as COO.

* V-mart has INR1.6b cash, and therefore, it should be funded internally.

* At its peak, Limeroad.com delivered 250,000+ app downloads per day, had a #3 All India Shopping Play Store ranking, and achieved GMV of INR7b. But with capital drying up, the revenue scaled down to INR1.8b in FY20 and INR690m in FY22 with 32% contribution margin and 15% EBITDA loss.

Limeroad.com, a complementary asset with an omnichannel foray?

* Incorporated in 2012, Limeroad.com is a market place offering fresh unbranded fashion products with 17m registered value shoppers and high customer engagement (3x LTV to CAC).

* It has a strong presence in the INR500-1000 ASP segment with ethos quite similar to that of V-mart. Its women contribution of 65% complements Vmart’s Men and kids-dominated portfolio.

* V-Mart plans to integrate the Limeroad.com platform for building an omni channel capability by a.) Offering V-Mart’s value products on Limeroad.com to create a differentiated offering. b.) V-Mart’s 400 stores can be used as delivery points so that customers can offer a shorter delivery period (~10-15% of Limeroad.com sales).

* The company can also create a Limeroad.com experience centre in the store and leverage its catalogue to expand the product/category range in the store.

Cumulative investment of INR1.5b over two years to breakeven

* It will additionally spend about INR600-700m over the next two years, not exceeding 15-20% of its EBITDA (150bp margin) with a target to increase its revenue by 20% in 24-36 months from its 10% of the overall sales in FY23, (implying INR5-6b GMV) and breakeven in two years.

* It indicated that management will maintain a conservative approach and will be mindful of not hurting the organic growth of physical retail expansion.

An unconventional acquisition

* It is unusual to see an offline retailer acquiring an online retailer (read marketplace) to drive omni-channel expansion for two reasons, a.) It is perceived that offline retailers can build an exclusive product platform inhouse instead of acquiring a company with a wider scale. b.) The online market is highly competitive with large investments from both horizontal and vertical players, which could derail any disciplined investment and return approach.

* Yet the management reiterated that a.) this is favorably placed in the build v/s buy choice and b.) it is cognizant of the scale and synergy it can create with a disciplined investment approach.

Highlights from the management commentary

* Acquisition consideration would mainly be attributed to taking over the liabilities of Limeroad, with no consideration being paid to any investor.

* The company expects to invest funds over the next 2-3 years with a maximum cap of 15-20% of annual EBITDA.

* The company will look to expand men’s and kids wear segment on the market place with a listing of INR8-9b worth of inventory being listed.

Valuation and view

* We prefer V-Mart, given the huge growth opportunity in the value fashion segment and V-mart’s strong execution capability. It has a strong competitive position, given its low price points, cost leadership, strong liquidity, and prudent inventory management.

* It has a potential to garner 20% revenue growth (SSSG + new store adds) for the long term. We factor 36%/2.5x revenue/PAT CAGR over FY22-24E. We have not yet factored in the Limeroad.com investment, which could dilute earnings in the next two years.

* We ascribe 19x EV/EBITDA on March’24, arriving at a TP of INR4,210. We reiterate our Buy rating on the stock.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer