Company Update : V Mart Retail Ltd by Motilal Oswal Financial Services Ltd
Good 2Q with consistent margin expansion (11% EBITDA beat)
* Revenue grew 22% YoY (already disclosed) to INR8.1b in 2QFY26, driven by 11% blended SSSG and ~14% YoY store additions.
* VMART opened 25 new stores (18 in V-Mart and seven in Unlimited) and closed two stores (one each in V-Mart and Unlimited) in 2Q, taking the total store count to 533 (V-Mart: 438, Unlimited: 95).
* Blended SSSG was boosted by an early festive season. Adjusted for the same, SSSG would have been in mid-single digits.
* Gross profit grew 22% YoY to INR2.7b (in line), as gross margins remained stable YoY at 33.6% (~35bp beat), despite a lower contribution from LR (which has complete revenue flow through to GM).
* Employee expenses grew 13% YoY to INR976m (3% lower vs. estimates).
* Other expenses rose ~6% YoY to INR1.02b (2% lower than our estimate), driven by i) ~40bp reduction in A&P spends for V-Mart and Unlimited formats, ii) ~20bp lower inventory provisioning, and iii) lower losses in the online segment (LR).
* Resultantly, reported EBITDA stood at INR715m (+85% YoY, 11% beat) and margins expanded 300bp YoY to 8.9% (~90bp beat).
* VMART achieved pre-IndAS profitability with EBITDA of INR45b in 2Q (vs. loss of INR184m YoY).
* Depreciation increased 20% due to a change in lease accounting, while interest costs declined ~55% YoY (11% below our estimate).
* Loss after tax stood at INR89m (vs. our estimate of INR176m loss), aided by higher EBITDA and lower finance costs.
* 1HFY26 revenue/EBITDA grew 17%/44% YoY, with reported PAT of INR247m (vs. ~INR445m loss YoY).
* For 1HFY26, we estimate that V-Mart’s pre-INDAS EBITDA would be INR657m (up 2.6x YoY), with margin expanding ~210bp YoY to 3.9%.
Segmental performance
* V-Mart (core): 2Q revenue grew 23% YoY to INR6.6b, driven by 17 net store additions (up 14% YoY) and ~11% SSSG. Reported monthly SPSF for 1HFY26 grew 4% YoY to INR698. 2Q EBITDA grew 71% YoY to INR605m, as margin expanded ~250bp YoY to 9.1%, driven by operating leverage and curtailed A&P spends.
* Unlimited: 2Q revenue grew 22% YoY to INR1.4b, driven by six net store additions (up 14.5% YoY) and ~11% SSSG. Unlimited’s reported monthly SPSF for 1HFY26 grew ~6% YoY to INR592. Unlimited’s 2Q EBITDA grew 36% YoY to INR144m, as margin expanded ~110bp YoY to 10.5% driven by operating leverage and curtailed A&P spends.
* LimeRoad (LR): Commission income declined ~37% YoY to INR66m, while operating loss reduced ~53% YoY to INR34m (vs. INR46m QoQ, INR73m YoY), driven by a further reduction in advertisement spends.
Improved profitability and lower inventory led to healthy FCF generation
* Working capital normalized significantly, with CWC days at 19 days (vs. 26 days in 1HFY25), driven by lower inventory (113 days vs. 115 YoY), and higher payable days (94 vs. 90 YoY). Core WC declined ~22% YoY to INR1.76b.
* Driven by a sharp increase (2.6x YoY) in pre-INDAS EBITDA and favorable working capital movement, OCF (after leases and interest) improved to INR865m (vs. outflow of INR11m YoY). With capex largely stable YoY, FCF (after interest and leases) stood at INR284m (vs. outflow of INR621m YoY).
Operational highlights
* 1H footfalls grew 14% YoY to 39m with a conversion rate of 46% (vs. 45% YoY).
* 1H reported SPSF stood at INR678 vs. (INR645 YoY), with V-Mart’s SPSF rising 4% and Unlimited’s by 6%.
* Blended 2Q ASP rose 4% YoY to INR214, with Apparel ASP growing 5% YoY to INR347. Pricing rejig continued in Unlimited, with 7%/3% YoY decline in overall/ apparel ASP. Overall volume grew ~18% YoY (vs. ~14% YoY in 1QFY26).
* Inventory remained healthy at 97 days (vs. 99 days YoY), led by sharp reduction in non-apparel inventory (101 vs. 115 days YoY), but partly offset by higher FMCG inventory (67 vs. 58 days YoY).
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