 "V-Mart Retail allows cash withdrawal of Rs 2,000 from stores")
V-Mart analysis post Q1: Despite a promising June quarter (Q1FY25), V-Mart is navigating a challenging landscape. The retail chain operator faces several hurdles, including evolving customer preferences, disruptions in transport logistics, and intensifying competition, analysts at domestic brokerage Nuvama said.
Changing customer preferences
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V-Mart's broad range of products, including apparel, non-apparel, home decor, accessories, footwear, kirana, and FMCG items, depends heavily on its ability to accurately forecast and respond to evolving customer preferences and trends, analysts said. Failure to recognise these trends or predict shifts, analysts believe, could lead to outdated inventory, increasing dead stock and damaging the company's brand reputation.
Logistical issues may hamper ops
Operating with a single distribution centre, V-Mart relies on trucks for product delivery to its stores. The company does not maintain long-term agreements with transport service providers, instead engaging them as needed. Consequently, disruptions in transportation, analysts pointed out, could negatively impact business operations.
Tough competition
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Analysts said V-Mart faces strong competition from both established retailers (organised and unorganised) and potential new entrants in the retail market.
Organised competitors like Vishal Mega Mart and Big Bazaar, along with new market entrants and existing players boosting their positions, intensify competition. This may force V-Mart to lower product prices, increase capital expenditures to differentiate itself, and boost advertising and distribution costs, potentially affecting profitability, they added.
Financial performance
On the positive side, V-Mart reported robust results for the June quarter, achieving the highest sales per square foot in the past four years and major footfall growth since the last quarter of FY20. Strong same-store sales growth (SSSG) was noted across both V-Mart and its Unlimited brand. The same store sales (SSSG) grew 11 per cent Y-o-Y for the quarter led footfall growth.
The company, analysts said, has historically managed retail costs tightly, contributing to improved earnings before interest, taxes, depreciation, and amortisation (Ebitda).
Overall, V-Mart’s net profit came in at Rs 12.1 crore in Q1FY25, as against net loss of Rs 21.9 crore in Q1FY24. Revenue from operations jumped 15.9 per cent year on year (Y-o-Y) to Rs 786.1 crore in the quarter under review.
For Q1FY25, the revenue from the retail trade stood at Rs 774.50 crore (up 17.14 per cent Y-o-Y) while revenue from the digital market stood at Rs 11.58 crore (down 33.29 per cent Y-o-Y).
At the operating level, Ebitda soared 88.93 per cent to Rs 99 crore in Q1 FY25 as compared with Rs 52.4 crore reported in Q1FY24. Ebitda margin improved to 12.6 per cent in Q1FY25 as against 7.7 per cent recorded in the corresponding quarter previous year.
Buy or Sell?
Nuvama analysts expect continued revenue growth driven by planned network expansion before the festive season. Consequently, they have revised their Ebitda estimates for FY25 and FY26 upwards by 6 per cent and 13 per cent, respectively. They also adjusted the target EV/Ebitda valuation to 17x from 13x, setting a revised target price of Rs 4,318, representing a 31.5 per cent upside and retaining a ‘Buy’ recommendation.
On the bourses, the stock has done exceptionally well, outperforming benchmarks. The stock has rallied 54.5 per cent in the last 3 months, as compared to a 7 per cent rise in BSE Sensex.
On August 5, the stock settled marginally (0.09 per cent) higher at Rs 3,251.80 per share. In comparison, BSE Sensex settled 0.21 per cent lower at 78,593.07 levels.
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