Buy V-Mart Retail Ltd For Target Rs.4,516 - Yes Securities
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Styling middle class India with solid execution
* V-Mart Retail currently operates 376 value fashion stores including Unlimited’s 74 stores acquired in July 2021 covering 3.2mn sqft retail areamainly in Tier 2,3 markets. With Unlimited’s acquisition, V-Mart forayed into South India and is now looking to replicate its best in class value retailing model.
* VMART has always been ahead of the curve in capability-building across functions which the promoter feels is crucial to scale the business. Its cluster based store expansion strategy is strengthening its brand equity in many regional markets, its automated assortment and stacking has given best-in-class warehousing efficiency, vendor consolidation from 1200 to 600 has improved sourcing and inventory control and investment in customer analytics has improved store-level decision making.
* After Covid-led disruption, V-Mart was one of the fastest to recover with 85% recovery in Q2FY22 which is seasonally weak quarter indicating the strength of its business model. Recovery in footfalls with higher conversion rates, improving margins with tight control on cost of retailing were other key positives. The company did well on the margin front fully passing on yarn inflation which will benefit margins in the coming quarters.
* VMART is aggressively working towards getting all its stores under the omni-channel click and collect platform which is gaining relevance quickly in the current environment. The company has decentralized decision making at a zonal level to become more agile towards micro market trends and has also been gradually reducing the time taken to bring the product from concept to store from 150 days earlier to about 100 days now. We believe its investment on the new warehouse and omni-channel capability development will improve operating efficiencies further.
* We believe Q3FY22 will clock positive SSSG given festive season is already witnessing flattish SSSGs with pre-winter sales receiving strong response. While it will take considerable time to transform Unlimited stores’ operating metrics to match V-Mart’s, progress on this front should be a key monitorable in coming quarters. With its continued capability-building on manpower and technology front coupled with entry in South, the company looks well placed to capture share especially from regional and unorganized players. We build in revenue/EBITDA CAGR of 52%/55% over FY21-FY24E and recommend buying into the stock with a TP of Rs 4,516, almost a 30% upside from current levels.
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