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1
Jun 06, 2018
V-Mart Retail Ltd
India Research - Stock Broking
BUY
Recommendation (Rs.)
CMP (as on Jun 05, 2018) 2041
Target Price 2401
Previous Target Price 1867
Upside (%) 18
Stock Information
Mkt Cap (Rs.mn/US$ mn) 36929 / 550
52-wk High/Low (Rs.) 2516 / 1008
3M Avg. daily value (Rs. mn)
70.3
Beta (x) 0.8
Sensex/Nifty 34903 / 10593
O/S Shares(mn) 18.1
Face Value (Rs.) 1.0
Shareholding Pattern (%)
Promoters 12.7
FIIs 31.3
DIIs 2.8
Others 53.2
Stock Performance (%)
1M 3M 6M 12M
Absolute 2 13 50 80
Relative to Sensex 2 9 41 62
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Vivek Ranjan Misra
040 - 3321 6270
vivekr.misra@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 8093 10017 12224 15086 18707
EBITDA 620 848 1328 1584 1964
EBITDA Margin (%) 7.7 8.5 10.9 10.5 10.5
Net Prot 276 439 777 910 1144
EPS (Rs.) 15.3 24.3 42.9 50.3 63.2
RoE (%) 12.0 16.3 22.4 21.3 21.5
PE (x) 33.6 33.9 44.2 40.6 32.3
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
Leading the Value Retail in Smaller Towns
V-Mart Retail’s revenue in Q4FY18 grew 18% on YoY basis to Rs. 2974Mn led by
stores addition. EBITDA increased by 55% over last year same quarter and stood
at Rs. 231 Mn with a margin expansion of 185bps on YoY basis. Same store sales
grew by 7% for the quarter on a high base of 34% last year. PAT margin improved
279bps on YoY basis on account of improved working capital utilization, reduced
interest cost.
The management attributed the improvement to: (1) Higher full price sell-through
on account of reduced discount period and lower discount rates (2) Reduction in
procurement cost as a result of increased discount from vendors (3) Reduction
in logistics cost and inventory cost. The company eyes on maintaining EBITDA
margin at 10.0%-10.5% and pass on incremental gains to end consumers. The
management repeatedly emphasized on volume-led growth.
Increase in private labels and better cost optimization to boost growth:
EBITDA margins are likely to expand on the back of an increase in sale in private
labels. Private labels share currently stands at 54% and is to increase to 80%. The
company has already shifted its focus to high-margin fashion segment from low-
margin kirana as the contribution from kirana has dropped signicantly over FY13-
17 from 25% in FY13 to 7% in FY17. Optimization in purchase of nished goods
and other expenses will also help in generating better margins.
Valuation and Risks
The market opportunity for organized value retailing is immense in India and the
company has been executing on its strategy to be a leader in the markets that it
operates in. The company is expecting to open more stores in Tier IV towns where
the competitive intensity is likely lower and the company will be able to generate
better margins. Given a strong balance sheet and rich cash ows, we value the
stock at 38xFY20E EPS (industry average) with a revised target price of Rs. 2401
with a potential upside of 18% with a “BUY” rating. However, changing customer
preference, massive competition and rising e-commerce preference are key risks
to the call.
Earnings Revision (%)
YE Mar FY19E
Sales (%) (1.0)
EBITDA (%) 4.0
PAT (%) 11.7
Source: Karvy Research
L
L
L
Company Update
Consumer Discretionary-Department Stores
V-Mart Retail Ltd
Bloomberg Code: VMART IN
80
110
140
170
200
230
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar -18
Apr-18
May-18
Jun-18
V-Mar t Retail Ltd
Sensex
2
Jun 06, 2018
V-Mart Retail Ltd
Key takeaways from quarterly earnings
Payable days management: The company is planning to purchase inventory
outright from surplus cash, thereby paying o the vendors early and get the payable
days down to 50-55 days from 60-65 days in FY19-20. This will also lead to lower
cost of purchase and hence help in improving the margins.
Inventory management: V-Mart is currently operating at an inventory level of 65
days and it aims to continuously improve and bring the number of inventory days to
~50 days over a period of time by undertaking stock audit, controlling shrinkage and
adopting MIS. The company has also recently automated its packing and wrapping
process to reduce shrinkage during transit.
Private labels’ share: Private labels’ share was around 50% which aided margins
in FY18. The company plans to increase private labels’ share to 80% in future to
provide the customers with unique products. The current focus is to increase the
share of private labels without pushing for margins. Currently, private label products
are not very dierent from normal products and hence getting a premium on them
looks unlikely. However, the company has set up a design team which is working on
creating dierentiated products on the private label side.
Focus on Tier-4 towns: Around 11% of the total number of stores are in Tier-IV
towns which generate 9%-10% of the revenue. The rent as well as competition from
organised segment players is lower in Tier-IV towns as compared to Tier-III and
Tier-II towns as not many organised segment players have set up shops in this
space where the population is less than 0.2Mn and fall below the district level. In
terms of revenues and protability, it is at par with other Tier-II and Tier-III towns.
Capitalizing on GST front: Implementation of GST has given an edge to the
company over its peers in the industry. 85% of the revenue of the company is derived
from the products which are priced at Rs. 1000 or lower, thereby attracting a lower
GST rate of 5% instead of 12%. This, in turn, will help the company in widening its
market share from unorganized players.
85% of the revenue is
derived from the products
priced at Rs. 1000 or lower.
50% of the company’s
sales comes from private
labels which aided margins
in FY18.
EBITDA increased by
55% YoY on the back of
reduction in shrinkages
and higher full price
sell-through on account of
reduced discount period
and lower discount rates.
Exhibit 2: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Turnover 2974 3680 (19.2) 2519 18.1
Expenditure 2743 3039 (9.8) 2370 15.7
EBITDA 231 640 (63.9) 149 55.0
Depreciation 67 59 14.2 56 19.3
Interest 2 3 (49.4) 9 (82.0)
Other Income 12 10 26.4 13 (4.8)
PBT 175 588 (70.3) 97 79.7
Ta x 16 221 (93.0) 33 (52.6)
PAT 159 367 (56.6) 64 147.0
EBITDA Margin (%) 7.8 17.4 (963) bps 5.9 185 bps
EBIT Margin (%) 5.9 16.1 (1014) bps 4.2 173 bps
Net Prot Margin (%) 5.4 10.0 (462) bps 2.6 279 bps
Source: Company, Karvy Research
3
Jun 06, 2018
V-Mart Retail Ltd
Exhibit 3: QoQ Revenue & Revenue Growth
Source: Company, Karvy Research
Exhibit 5: QoQ EBITDA & EBITDA Margin
Source: Company, Karvy Research
Exhibit 4: QoQ Gross Profit & Gross Margin
Source: Company, Karvy Research
Exhibit 6: QoQ PAT & PAT Margin
Source: Company, Karvy Research
Exhibit 7: Change in Earnings Estimates
YE Mar - Standalone (Rs. Mn)
FY19E FY20E
Old New % Change (Introducing)
Net Sales 15235 15086 (1.0) 18707
EBITDA 1523 1584 4.0 1964
EBITDA Margin (%) 10.0 10.5 50 bps 10.5
Adj. PAT 815 910 11.7 1144
EPS (Rs.) 45.0 50.3 11.8 63.2
Source: Karvy Research
1618
2651
1780
2271
1959
3268
2519
3151
2419
3680
2974
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Revenue (Rs.Mn)
Growth % (YoY)
474
801
488
687
549
1070
683
994
706
1330
891
20%
25%
30%
35%
40%
0
350
700
1050
1400
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Gross Profit (Rs. Mn)
Gross Margin (%)
58
302
52
180
30
491
149
371
86
640
231
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
EBITDA (Rs.Mn)
EBITDA Margin (%)
9
150
5
94
(18)
288
64
224
27
367
159
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
PAT (Rs.Mn)
PAT Margin (%)
4
Jun 06, 2018
V-Mart Retail Ltd
Exhibit 8: V-Mart Reail - 5yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 9: 2yr PE Band
Source: Bloomberg, Karvy Research
0
10
20
30
40
50
0
600
1200
1800
2400
3000
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov
-14
Feb-15
May-15
Aug
-15
Nov-15
Feb-16
May
-16
Aug-16
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
May-18
33x
38x
41x
1 yr forward PE (RHS)
6000
7000
8000
9000
10000
11000
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan
-17
Feb-17
Mar-17
Apr-17
May
-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Price (Rs.)
28.6x
27.3x
26x
24.7x
23.4x
5
Jun 06, 2018
V-Mart Retail Ltd
Financials
Exhibit 10: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Revenues 8093 10017 12224 15086 18707
Growth (%) 12.4 23.8 22.0 23.4 24.0
Operating Expenses 7472 9170 10896 13502 16743
EBITDA 620 848 1328 1584 1964
Growth (%) (2.5) 36.6 56.7 19.3 24.0
Depreciation & Amortization 190 186 229 271 317
Other Income and others 24 41 41 60 75
EBIT 454 703 1140 1374 1722
Interest Expenses 31 35 15 15 15
PBT 423 668 1125 1358 1707
Tax 147 229 348 448 563
PAT after exceptional item 276 439 777 910 1144
Growth (%) (26.1) 58.9 77.0 17.1 25.7
Source: Company, Karvy Research
Exhibit 11: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Cash & Cash Equivalents 43 29 196 805 1089
Inventory 2044 2692 3071 3129 3022
Loans & Advances 251 63 73 73 98
Gross Block 1757 1992 2519 3028 3539
Net Block 1103 1173 1447 1686 1880
CWIP 23 12 35 35 35
Miscellaneous 368 939 677 894 1824
Total Assets 3832 4907 5499 6622 7947
Current Liabilities & Provisions 1420 2135 1941 2272 2548
Debt 0 6 3 3 3
Other Liabilities 105 66 81 81 81
Total Liabilities 1525 2207 2025 2356 2632
Shareholders Equity 181 181 181 181 181
Reserves & Surplus 2127 2520 3293 4085 5134
Total Networth 2307 2700 3474 4265 5315
Total Networth & Liabilities 3832 4907 5499 6622 7947
Source: Company, Karvy Research
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Jun 06, 2018
V-Mart Retail Ltd
Exhibit 12: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
PBT 423 668 1125 1358 1707
Depreciation 190 186 229 271 317
Interest (Net) 29 35 15 76 90
Tax Paid (149) (243) (381) (448) (563)
Inc/dec in Net WC (207) 70 (350) 358 273
Other Income 175 (29) 1 0 0
Cash ow from operating activities 461 687 639 1615 1824
Inc/dec in capital expenditure (260) (145) (479) (509) (511)
Others (112) (583) 333 (383) (975)
Cash ow from investing activities (372) (728) (146) (893) (1485)
Dividend paid (48) (2) (33) (33) (33)
Interest paid (30) (32) 0 (15) (15)
Inc/dec in debt (20) 87 (351) 0 0
Others 2 (4) 0 (7) (7)
Cash ow from nancing activities (96) 49 (384) (54) (54)
Net change in cash (6) 8 109 668 284
Source: Company, Karvy Research
Exhibit 13: Key Ratios
YE Mar FY16 FY17 FY18 FY19E FY20E
EBITDA Margin (%) 7.7 8.5 10.9 10.5 10.5
EBIT Margin (%) 5.5 7.0 9.3 9.1 9.2
Net Prot Margin (%) 3.4 4.4 6.4 6.0 6.1
Dividend Payout Ratio (%) 0.8 8.2 4.2 3.6 2.8
Net Debt/Equity (x) 0.10 0.12 (0.06) 0.00 0.00
RoE (%) 12.0 16.3 22.4 21.3 21.5
RoCE (%) 18.3 25.4 32.0 31.6 31.9
Source: Company, Karvy Research
Exhibit 14: Valuation Parameters
YE Mar FY16 FY17 FY18 FY19E FY20E
EPS (Rs.) 15.3 24.3 42.9 50.3 63.2
DPS (Rs.) 0.1 2.0 1.8 1.8 1.8
BVPS (Rs.) 127.7 149.4 192.0 235.7 293.6
PE (x) 33.6 33.9 44.2 40.6 32.3
P/BV (x) 4.0 5.5 9.9 8.7 6.9
EV/EBITDA (x) 14.9 17.5 25.7 22.8 18.2
EV/Sales (x) 1.1 1.5 2.8 2.4 1.9
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
7
Jun 06, 2018
V-Mart Retail Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
Connect & Discuss More at
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therein, certify (ies) that the views expressed herein accurately reect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no
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