We interacted with the the V-Mart management to gain the latest insights on the developments and recovery in the Retail Apparel market. Here are the key highlights, Revenue recovery and a rise in footfall in lower tier cities have been better v/s metro cities. Thus, recovery in value retailers such as V-Mart is better v/s urban- centric retailers.We understand sales during the festive season were lower by ~20% YoY on an LTL basis. Continuous improvement is seen in footfall MoM. The company has added seven stores recently. We believe that while costs are not expected to decline further, an improving revenue profile in 2HFY21 could generate INR500–600m EBITDA (pre-Ind-AS 116).
V-Mart’s balance sheet remains strong, with just INR 394m net debt in 1HFY21. Furthermore, there is scope to improve ~INR1b liquidity from payables – the company released payments in 1HFY21 to support vendors and maintain a competitive edge in sourcing inventory.This could turn it net cash by FY21. Valuation and view, we factor in higher FY22E revenue/EBITDA at 11%/10% from FY20 levels, to reach INR18b/INR2.3b in FY22E. We continue to maintain our Buy rating (TP of INR2,350) given the huge growth opportunity in this space, its superior balance sheet, and its astute inventory /working capital management.
Very comfortable working capital position. V-Mart currently has a healthy balance sheet, the best in the last 4–5 years. It is likely to turn net cash in FY21. Inventory does not have much room for a reduction from 2QFY21, but payables have reduced significantly, even below 2QFY21 levels.Thus, there is ample scope to source liquidity of INR1b from payables. Improving product and pricing v/s peers. Peers in the market have increased payables significantly, restricting vendors from offering fresh stock. On the contrary, V-Mart’s prompt vendor payments have ensured the timely delivery of products and its keenness to bring fresh inventory. This should help improve costing and competitiveness in the market.
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