EUR 120.00 For Business Accounts Only

MOSL: V-MART RETAIL (Neutral)-Upping the pace of store adds

V-Mart Retail: Upping the pace of store adds

(VMART IN, Mkt Cap USD0.6b, CMP INR2466, TP INR2450, 1% Downside, Neutral)

 

• Top-line steady but facing margin pressure: VMART’s fast-paced pursuit of new store addition (14 in 4QFY19) appears to have contributed to revenues, which were up by a sharp 16% YoY to INR3,445m (3% beat) in the quarter. However, same-store sales growth (SSSG) nearly halved to 3.5% YoY owing to demand softness for most part of the quarter. Gross margin contracted 100bp YoY, while the EBITDA margin shrank 260bp YoY to 5.2%, pulling down EBITDA by 23% YoY to INR178m (25% miss). Subsequently, VMART reported a net loss of INR9m. However, adjusted for the exceptional loss of INR74m (provision of IL&FS investment), PAT stood at INR65m for the quarter. For FY19, revenue grew 17%, EBITDA was flat and adj. PAT declined 8% YoY.
• Concall highlights: (1) Barring the brief push from the festive season, demand has largely remained subdued. (2) Inventory days reduced from 86 days to 81 days due to destocking, which impacted the margin but also lowered shrinkage. (3) The company targets to increase its store count by 25% and achieve 9-9.5% EBITDA margin, assuming SSSG of 7-8%. (4) Many national players are opening stores in smaller towns, and VMART, too, plans to be aggressive here to confront competition.
• Slack market but still expanding aggressively: We expect VMART to add 45 new stores and deliver 6% SSSG in FY20/21. However, new players’ aggression in new store openings in small towns is likely to keep competitive intensity high and exert pressure on earnings. We, thus, cut our EBITDA margin estimate and reduce our FY20/21 PAT estimate by 4-5% (20% adj. PAT CAGR over FY19-21).