Buy Electronics Mart India Ltd For Target Rs. 160 By JM Financial Services
Inline quarter; pace of recovery in SSSG will be key
EMIL’s 4QFY25 earnings print was largely inline on topline as well as profitability. Revenue growth was driven by store additions (+25%) as SSSG (+1.5%) remained muted. In terms of cluster based performance, North cluster sales grew by 66% (function of healthy SSSG + store additions) while South cluster sales grew by 8.6% yoy. The growth in South cluster was impacted by muted growth in Hyderabad (largest market accounting for c.55-60% of overall sales). Sequential improvement in margins was inline with our est. led by better mix with large appliances (AC) growing faster vs mobile phones. Capex for the year was higher vs historical trends on account of purchase of stores (6 owned stores added in FY25); however, the capex intensity should reduce in coming years with store expansion being 25-30 stores & that too on lease basis. The start of FY26 is likely to be weak, with key summer season sales being impacted due to unseasonal rainfall & recovery should follow going into 2H (led by festive & weak base). Factoring weak start, we have cut our est. by c.4% for FY26/27E. Stock trades at 27x/22x FY26/27E however; acceleration in SSSG will be key for re-rating from current levels. From long term perspective, we believe EMIL has ingredients (operates through LFS, over indexed in large appliances, strong relationship with marquee brands) to tap large opportunity in organised electronic retail industry. Maintain BUY with revised TP of Rs.160 (27x Mar’ 27E).
* Revenue growth healthy driven by store additions: EMIL’s 4QFY25 sales and EBITDA grew by 12.8% (faster vs c.6% seen in the previous two quarters) and 5.8% yoy to INR 17.2bn and INR 1.1bn respectively, while PAT declined 22.4% to INR 315mn. Net sales and EBITDA were c.1-2% above our estimates, while higher interest and depreciation expenses led to an 18.1% miss on PAT. Sales were driven by healthy store addition (+25% yoy, 9 stores added). Overall same store sales grew 1.5% yoy – Hyderabad SSSG was down 0.5% (impacted by subdued demand in the region, driven by tighter credit conditions, a slowdown in the real estate sector, and rising inflation), while Telangana UP country/AP/ Delhi-NCR SSSG were 0.2%/5.1%/33.8%. Bill cuts increased by 10% while average ticket size was up 1% yoy in 4QFY25. In terms of region-wise performance, South cluster sales grew by 8.6%, despite negative same store sales in Hyderabad. North cluster grew by 66.7% yoy aided by store additions as well as healthy SSSG. Management plans to add 25-30 stores in FY26E.
* Operationally inline, higher finance costs and depreciation drove miss on earnings: In terms of product mix, saliency of large appliances (high-margin category) increased by 100bps yoy to 47% while mobiles declined by 100bps yoy to 41%. As a result, gross margins expanded by 20bps yoy to 14.6% (vs. JMFe: 14%). Staff costs (+19.1% yoy) and other expenses (+23.8% yoy) grew ahead of revenue. Resultant EBITDA grew by 5.8% to INR 1.1bn (c.1.4% above our estimates), with margin compression of 44bps to 6.6% (inline). Pre-IND AS EBITDA margins for south cluster stood at 6.7% while north cluster reported loss of INR 3mn (impact of high store additions). Overall pre-IND AS EBITDA margins were down c.50bps to 4.7%.
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