Buy V-Mart Retail Ltd for the Target Rs.975 by Motilal Oswal Financial Services Ltd
Good 1Q; traction strengthening in Unlimited
* VMART delivered another strong quarter, with 1QFY27 revenue rising 23% YoY, driven by 9% blended SSSG. The traction in Unlimited keeps strengthening, with volume growth of ~34% YoY (~30% YoY LTM).
*Despite ~85bp YoY gross margin contraction (60bp YoY increase in inventory provisioning), pre-IND AS EBITDA grew 36% YoY, as margin expanded ~75bp YoY to 7.6% (~10bp beat).
* Management indicated that demand remained resilient with higher footfalls, however inflationary pressures on household budgets and deficient monsoon (so far) remains key monitorables.
* Management has reiterated its guidance of 90 store additions and midto high-single-digit SSSG.
* We fine-tune our FY27-28 estimates and build in FY26-29E CAGR of 18%/26%/33% in revenue/pre-Ind AS EBITDA/adjusted PAT, driven by ~14% CAGR in store additions, mid-single-digit SSSG and continued operating leverage with pre-IND AS margin rising to ~7.5% by FY29.
* We reiterate BUY with a TP of INR975, premised on 18x Sep'28E EV/preInd AS EBITDA. Despite the recent rally, the stock trades at 14.5x FY28E EV/pre-Ind AS EBITDA, a meaningful discount to VMM (~29x), leaving room for further re-rating as consistent execution sustains
Key highlights from the management commentary
* Demand trends: Demand remained healthy despite a delayed summer season, shorter wedding period and Adhik Maas. Growth was driven by higher footfalls, improved merchandising and ~2-3% higher ASP largely driven by mix.
* Outlook: 2QFY27 is likely to be a muted quarter due to the timing shift of Durga Puja to 3QFY27. The company expects demand to recover during the festive quarter, while inflationary pressures on household budget and deficient monsoon (so far) remain key near-term monitorables. VMART has reiterated its guidance of 90 gross store openings and mid- to high-single-digit SSSG.
* Raw material inflation remains manageable (up 10% YoY), with higher raw material costs and minimum wages largely offset through sourcing efficiencies, product engineering, vendor negotiations and selective price increases.
* Inventory productivity improved, with inventory days declining 8% YoY to 86 and inventory per store reducing 5% YoY (to INR1.5m), driven by fresher assortments, faster replenishment and improved full-price sell-through.
Valuation and view
* The improved productivity of VMART/Unlimited stores and lower losses in LimeRoad have led to an improvement in VMART’s overall profitability (pre-IND AS margins up ~180bp YoY to 6.2% in FY26).
* However, VMART still lags value fashion peers on profitability, which provides room for further margin expansion.
* VMART remains a key beneficiary of the unorganized-to-organized retail shift and the massive growth opportunity in value fashion. However, raw material inflation due to the West Asia conflict and its impact on demand/margins remains a key near-term monitorable.
* We fine-tune our FY27-28 estimates and build in FY26-29E CAGR of 18%/26%/33% in revenue/pre-Ind AS EBITDA/adjusted PAT, driven by ~14% CAGR in store additions, mid-single-digit SSSG and continued operating leverage, with pre-IND AS margin rising to ~7.5% by FY29.
* We reiterate BUY with a TP of INR975, based on 18x Sep'28E EV/pre-Ind AS EBITDA. Despite the recent rally, the stock trades at 14.5x FY28E EV/pre-Ind AS EBITDA, a meaningful discount to VMM (~29x), leaving room for further rerating as consistent execution sustains. VMART remains one of our preferred picks in the retail space
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