IGI Logo

We recently met EMIL’s management to better understand the strong growth rebound in 1Q, its sustainability, and network expansion opportunities (West Bengal). EMIL has built a differentiated retail positioning by partnering with a select set of premium brands across categories and providing a superior experience with a better display assortment at its stores. It is also gradually expanding its TAM, with turnkey home/kitchen solutions at premium/luxury price points. Following a strong 1Q, wherein revenue grew ~39% yoy (SSG: 34.2%), EMIL is confident of delivering ~20% revenue growth in FY27, supported by improved demand trends in the South cluster, recovery in the North cluster after unseasonal rains in 1Q, and better realizations in the mobile category. EMIL expects gross/EBITDA margin to recover sharply to all-time highs of 15.0-15.5%/7.5-8.0% in FY27, respectively, with strong growth recovery and better inventory planning. It plans to add 25-30 stores annually across existing and new markets. EMIL’s growth longevity is increasing, with diversification beyond its core South cluster-it has already scaled to ~Rs6bn in the North and is now entering the East market (West Bengal) in a big way. EMIL also expects ROCE to continue improving with the maturing of the North cluster and improved growth trends in the South cluster. EMIL is currently trading at a TTM PER of ~35x (vs ~55x for Aditya Vision). Current valuations are undemanding, provided the company keeps executing on its growth prospects.

Foray into WB; expects to add ~30 stores in 2 years

West Bengal (WB) is expected to be the next growth market for EMIL, with management targeting 5 stores by Diwali and 10-12 stores by FY27-end. According to management, WB represents ~1/3rd the size of the NCR market. EMIL will follow its core strategy of cluster-based expansion in WB and expects to add ~30 stores in WB over the next 24 months. It expects to buy 10-11 properties over the next two years in WB, entailing additional capex of ~Rs500mn for buying properties in locations where rentals are high, to maintain store economics. Management anticipates a faster turnaround/payback for the stores in WB vs the North cluster, with the new stores expected to start contributing to topline by FY27-end.

Significant number of stores in ramp-up phase; expansion to remain measured

South, being a mature market for EMIL, has better store economics, with store payback at 10-11 months vs 16-18 months in the North, while store-level breakeven is achieved in 30-40 days vs 2.0-2.5 months in the North. EMIL highlighted that a significant portion of the store network is still in the ramp-up phase, with 131 stores being less than 4 years old (~57% of the overall network), providing scope for further improvement in store productivity and margins as these stores mature. EMIL expects ~Rs1bn of capex for opening 25-30 stores in FY27, while an additional Rs500mn toward buying 11 properties in WB could flow through into 1Q/2QFY28. The company remains disciplined on store economics, targeting rentals at <3% of revenue initially and overall store operating costs at 8-9%, with 10% as the upper limit.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354