EUR 120.00 For Business Accounts Only

MOSL: V-MART (Upgrade to Buy)-Value retailer with a well-run business; Long runway for growth

(VMART IN, Mkt Cap USD0.5b, CMP INR2150, TP INR2700, 26% Upside, Upgrade to Buy)

** Our recent channel checks and meetings with regional value retailers corroborated the advantage V-Mart enjoys over national and regional players. Focus on lower-tier locations with early mover advantage, better product profile at attractive price points and operational efficiencies appear to be working in the company's favor even as consumer spending remains weak.

** The company has built a strong brand recall, a wide product assortment and efficient cost/WC position. This has translated into better footfall/throughput and lower cost/employee churn versus peers operating at same locations.

** V-Mart's EBITDA has grown only modestly and margin has contracted by 230bp over FY18-20 due to a sharp fall in same-store sales growth (SSSG). However, we note that this is more of an industry phenomenon and V-Mart will be quick to capture opportunities once the operating environment recovers.

** The company's disciplined store expansion over the last five years based solely on internal accruals has ensured a well-capitalized net cash balance sheet.

** We upgrade V-Mart to Buy as it stands to benefit from (a) its strong cost leadership at a time when regional players are facing pressure, (b) tailwinds from better monsoon and agricultural output and (c) low SSSG/margin base. Also, the ~32% correction in the stock price from its peak in Aug'18 provides an attractive entry point, in our view.