Buy V-Mart Retail Ltd For Target Rs. 4370 by Axis Securities
Growth Story Remains on Track; Maintain BUY
Est. Vs. Actual for Q3FY25: Revenue – INLINE ; EBITDA – BEAT; PAT – BEAT
Changes in Estimates post Q3FY25
FY26E/FY27E: Revenue: -2%/-1%; EBITDA: 3%/2%, PAT: -18%/-3%
Recommendation Rationale
• Beating Operating performance: V-Mart Retail posted a healthy 15.5% YoY revenue growth, which was in line with expectations and driven by a robust 10% YoY same-store sales growth (SSSG). Demand remained strong, supported by the festive season, followed by wedding and winter sales that picked up in December. Management noted early signs of recovery in semi-urban and rural markets. EBITDA margins expanded by 323 bps to 16.7%, led by gross margin expansion, the closure of loss-making Unlimited stores, and a 54% reduction in Lime Road losses. Management remains optimistic about demand recovery, backed by sustained growth in footfalls.
• Long-term Story Intact: The company has implemented key measures, including 1) Reducing expenses and losses to bring the Lime Road business toward profitability, with Lime Road losses reduced by 54% YoY in Q3FY25; 2) Enhancing its Omni-channel model, which is aiding in customer retention for V-Mart and Unlimited; 3) Emphasizing product quality aligned with the latest fashion trends; and 4) Maintaining its store opening guidance at 50 stores per year. Additionally, demand is anticipated to recover going forward, supported by a budget boost and government initiatives benefiting V-Mart's core customer base. Furthermore, stable inflation is expected to bolster the company’s mid to long-term prospects.
Sector Outlook: Positive
Company Outlook & Guidance: We have marginally increased our FY25/26 EBITDA estimates as we remain positive on the stock.
Current Valuation: 20x Dec-26 EV/EBITDA (Earlier valuation: 23x Dec-26 EV/EBITDA)
Current TP: Rs 4,370/share (vs. earlier TP of Rs 5,000/share).
Recommendation: With a 24% upside potential from the CMP, we maintain our BUY rating on the stock.
Financial Performance
Revenue grew 16% YoY, driven by same-store sales growth (SSSG) of 10% YoY and a 40% YoY increase in footfall. Gross margins improved by 25 bps YoY to 35.8%, supported by improved sell-through of new winter merchandise. EBITDA margins improved to 16.7%, up 323 bps, led by a 54% reduction in Lime Road losses and strong operating leverage. The company incurred Rs 83 Cr in capex during 9MFY25, primarily for 49 new store openings and refurbishments. Net PAT stood at Rs 72 Cr.
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SEBI Registration number is INZ00016163
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