Update on V-Mart Retail Ltd by Motilal Oswal
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EBITDA up 50% YoY led by margin improvement and cost control
* Revenues from newly acquired Unlimited stores contributed 16% of revenue i.e. ~INR734m. Revenue for VMart stores (excl Unlimted) stood at INR3.85b up 10% YoY. Adjusting for the new area addition of 12% over 4QFY21, SSSG is estimated to be flattish for VMart stores (excl Unlimited).
* Compared to 4QFY20, revenue is up 16% for Vmart stores (excl Unlimited). Considering ~15% impact in 4QFY20, revenue in 4QFY22 is flat v/s normalized precovid level. All other Retail Apparel players posted a significantly better performance – ABFRL/WLDL/SHOP saw a 25%/44%/6% growth on a YoY basis. Gross margin expanded by 510bp YoY to 34.9% (est. 29.1%), aided by an improved margin contribution from Unlimited Stores. This is an expansion of ~400bp from the normalized historical gross margin of ~30% in the fourth quarter. Consequently, gross profit stood at INR1.6b (8.5% beat).
* EBITDA grew 50% YoY to INR503m (12% beat), aided by a higher gross profit, lower discounted sales, and strong cost-control measures. Adjusted for INR70- 80m EBITDA from Unlimited, VMart EBITDA stood at INR430m, up 25-30% YoY.
* Employee/other expenses grew 43.7%/64.5% YoY to INR511m/INR589m due to the integration of Unlimited and store expansion.
* Finance cost grew 60.7% YoY to INR235m, while other income fell 35.8% to INR28m (est. INR57m).
* Net loss widened to INR26m v/s INR15m in 4QFY21 (v/s our loss estimate of INR84m).
Highlights from the management commentary
* The company opened 14 new stores and closed eight stores in 4QFY22, taking its total store count to 380 as of 31st Mar’22. Contrary to general assumptions, a large part of the closure is related to V-Mart stores.
* The outlook for FY23 remains optimistic on the back of an improving COVIDfree environment. However, macro-economic pressures pose a challenge to mass, value-seeking customers. This creates a dis-balance between income growth and their inflation-impacted spending power. Thus, affecting quantitative demand in smaller towns.
* The company has declared a final dividend of INR0.75 per share.
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