Buy V-Mart Retail Ltd For Target Rs. 950 by Axis Securities Ltd
Growth Story Remains on Track; Maintain BUY
Est. Vs. Actual for Q1FY26: Revenue – MISS ; EBITDA – BEAT ; PAT – BEAT
Changes in Estimates post Q1FY26 FY26E/FY27E: Revenue: 0%/1%; EBITDA: 1%/2%, PAT: 2%/2%
Recommendation Rationale
• Resilient Performance, amid Mixed Environments: V-Mart reported ~13% YoY revenue growth, with the core business V-mart, rising 14% and Unlimited growing 12%, supported by increased footfalls and a strong wedding season. However, growth was partially offset by regional disruptions stemming from the Indo-Pak conflict and the early monsoon. SSSG stood at 1%. Gross margin expanded 9 bps YoY to 35.3%, supported by higher full-price sales and inventory liquidation. EBITDA grew 27.5% YoY to Rs 126 Cr, with margin expansion of 166 bps to 14.3%, driven by improved gross margins and a 56% reduction in Lime Road losses.
• Gen Z Fuels V-Mart’s Next Growth Chapter: As per the management, competitive intensity in organised retail continues to rise, with multiple players expanding across key markets. However, this is being offset by the accelerating shift from unorganised to organised retail, which is benefiting all formal players, including V-Mart. The management remains focused on engaging younger demographics through enhanced product variety, a stronger digital presence, and content-driven initiatives, which are expected to serve as key levers for driving future same-store sales growth.
Sector Outlook: Positive
Company Outlook & Guidance:
We have increased our FY26/27 EBITDA and PAT estimates as we remain positive on the stock. Current Valuation: 15x Mar-27 EV/EBITDA (Earlier valuation: Same ) Current TP: Rs 950/share (vs. earlier TP of Rs 3,760/share*). (*TP is not comparable as Vmart has issued Bonus shares in the ratio of 3:1)
Recommendation: With an 18% upside potential from the CMP, we maintain our BUY rating on the stock.
Financial Performance
Revenue grew ~13% YoY, driven by SSSG of 1% YoY and increased footfall. Gross margins improved by 9 bps YoY to 35.3%, supported by stronger full-price sales and liquidation of old inventory. EBITDA margins improved to 14.3%, up 166 bps, led by a 56% reduction in Lime Road losses and strong operating leverage. The company incurred Rs 30 Cr in capex, primarily towards new store openings and refurbishments. Net PAT stood at Rs 34 Cr, up 177% YoY.
Outlook:
The company is actively pursuing steps to achieve its objectives: 1) Reducing expenses and losses by closing unprofitable Unlimited stores and steering the Lime Road business toward profitability; 2) Strengthening its omnichannel model to regain customers of V-Mart and Unlimited; 3) Focusing on product quality and staying aligned with fashion trends; and 4) Adhering to its store opening target of 65 stores per year. Additionally, demand is expected to recover further, particularly in rural and smaller towns (V-Mart’s core customer base), supported by a budget boost, government infrastructure spending, and stable inflation, projected to enhance the company’s prospects over the mid-to-long term.
Valuation & Recommendation:
We remain optimistic about the company and expect Revenue/EBITDA growth of 17%/37% CAGR over FY24-27E. We maintain our BUY rating on the stock with a revised TP of Rs 950/share. Our TP implies an upside of 18% from the CMP.
Other Concall highlights
• Expansion Strategy: In Q1FY26, V-Mart Retail expanded its footprint with net 9 new V-Mart stores and 4 new Unlimited stores, bringing the total count to 510 (421 V-Mart and 89 Unlimited stores). The company further reiterated its target of achieving 65 new store additions in FY26.
• ASP: ASPs grew by 1% with 2% growth in V-Mart and a decline of 3% in Unlimited due to the ongoing shift towards more value-led offerings.
• Inventory: V-Mart closed the quarter with Rs 18 Cr in inventory (93 days), marking a 5% YoY improvement. While perstore inventory rose slightly, overall health remained strong. Aged inventory provision dropped sharply from 1.7% to 0.7%, driven by liquidation efforts and tech-led enhancements in design, sourcing, quality control, and replenishment—resulting in improved sell-through and reduced leftovers.
Key Risks to Our Estimates and TP
• Increase in competitive intensity,
• Weakening demand environment.
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