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* Value fashion retailers witnessed resilient demand, despite Adhikmaas and inflationary pressures on household budgets. This resilience was driven by continued market share gains from unorganized retail.

* The aggregate revenue of the four listed value fashion retailers grew ~25% YoY in 1QFY27, supported by ~20% YoY area additions and ~4.5% YoY productivity improvement.

* The value fashion retailers stepped up promotional activities during Adhikmaas, which weighed on their gross margins (GM). Aggregate gross margin contracted ~25bp YoY in 1QFY27, with VMM being the outlier (~30bp YoY GM expansion).

* Operating leverage and tighter cost-control measures offset the impact of minimum wage hikes and GM contraction. Aggregate pre-Ind AS EBITDA rose ~26% YoY in 1QFY27 with margin expanding ~10bp to 9.0%.

* RM and wage inflation, along with a potentially weaker monsoon, remain the key near-term risks. However, value fashion retailers are looking at sourcing efficiencies, mix interventions and calibrated price hikes (largely restricted to higher price points) to offset the higher input costs.

* Despite potential near-term concerns, we remain structurally positive on value fashion retailers. We reiterate our BUY rating on V-Mart (TP: INR975) and VMM (TP: INR165).

Demand momentum remains healthy, profitability continues to improve

* Value fashion retailers continued to outperform in 1QFY27, with aggregate revenue growth of ~25% YoY, supported by ~20% area expansion and healthy SSSG. Despite Adhikmaas and inflationary pressures, demand momentum remained resilient. Customer acquisition and footfall growth remained healthy, reinforcing continued share gains from unorganized retail.

* Aggregate GM contracted 25bp YoY to 30.1%, due to higher promotional sales and inventory provisioning. Nevertheless, profitability remained resilient, with better cost control and operating leverage driving ~26% YoY growth in aggregate pre-Ind AS EBITDA and ~10bp margin expansion to 9.0%.

* V-Mart/VMM witnessed EBITDA margin expansion of 75bp/25bp, while V2 experienced a limited ~35bp margin contraction despite aggressive expansion. BSR continued to face margin pressure, with an 85bp margin contraction, reflecting continued investment in network expansion.

* RM and wage inflation remain the key near-term risks, as companies are likely to use calibrated price hikes (~4-5% price increases), sourcing efficiencies and mix interventions to offset higher input costs.

Valuation and view

* Value fashion retailers sustained their outperformance vs. premium and branded apparel retailers. This outperformance was underpinned by structural tailwinds, such as

1) rising aspirations in Tier 2/3/4 cities

2) an accelerating shift from unorganized to organized channels

3) deeper private label penetration driving assortment depth

4) aggressive network expansion.

* We remain bullish on the growth prospects of value fashion retailers, driven by the massive opportunity from the unorganized-to-organized shift and rising preference for one-stop family shopping in Tier 2 and beyond cities.

* We reiterate our BUY rating on VMM (TP INR165) and V-Mart (TP INR975), given their robust growth outlook (high teens revenue CAGR over FY26-29) and improving profitability (~24-26% FY26-29 pre-IND AS EBITDA CAGR).

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