V-Mart Retail Ltd. share price target

The renewed lockdown in V-Mart Retail's (VMART) key markets of Bihar and UP (56% of total stores) will retard demand recovery.

We discussed consumptions trends in the wake of Covid-19 with the management of V-Mart Retail (VMART).

Expensive Valuation:Despite the correction post the pandemic, the stock has retraced to nearly 10% from the peak seen around March 2020.

Weekly Wrap: Better macro prints supported markets. VMART: Lockdown exacts severe toll on business. Banking Credit Tracker: Lockdown mars retail credit growth

Moving from Rural to Urban: V-Mart has gradually been shifting its reach from smaller to bigger cities and towards higher value retailing.

1) Strong execution, 2. Insulation from an online onslaught and 3) inherent advantage within the ecosystem given the tail's precarious working capital position makes VMART our top pick in apparel retail. We revise our DCF-based TP upwards to Rs. 2,500/sh (earlier Rs. 2,150/sh). Revision is a function of 1. DCF roll-over to FY22, 2. 3/7% increase in FY21/22 EBITDA estimates to factor in better gross margins given the focus on full-price sell-through/fresh merchandise. V-MART continues to track strong growth, albeit expansion-led. SSSG print remains uninspiring (1%). What surprised us positively were higher margins, low SSSG notwithstanding. 1. Clockwork-like execution, 2. Higher full price sell-through, 3. Better merchandise sourcing margins courtesy vendor consolidation underpinned margin expansion. Store expansion remains tactical in existing Tier 1/2 catchments to tighten supply chain costs and in catchments with struggling peers (credit cycles running up for the latter) to gain market share.

6 February 2020 V-Mart recorded a strong sales/PAT growth of 21%/58% YoY (7% beat) in 3QFY20 amidst weak 2% SSSG due to the poor macro outlook, subdued festive season and muted pre-winter sales. However, we raise our FY20/FY21 EBITDA estimate by 14%/11%, on the back of its steady pace of store additions and strong cost optimization initiatives driving margin improvement. However, given the weak economic outlook and the stocks recent sharp rally, we maintain V-Marts revenues for 3QFY20 were up 21% YoY to INR5.6b (7% above est.), despite a weak economic environment and slowing consumer spending. Gross margin improved by 80bp YoY to 36.3%, led by supplier consolidation and efficient merchandise sourcing. Pre Ind-AS116, EBITDA was up 29% YoY to INR944m (16% beat), led by EBITDA margin improvement of 16.8% (up 100bp YoY). PAT at INR661m was up 58% YoY (22% beat), driven by higher sales and improving margins.

V-Mart Retail (VMART) reported below-expected Q3FY20 revenue growth of 21% YoY to Rs 5.6bn, with SSSg of 1%.

without the adjustment, operating loss would have been to the tune of Rs 7.87 crs/$1.1m (vs loss of Rs 3.86 crs/$0.6m in Q2FY19). Higher depreciation expense and finance cost due to lease rental adjustment dented PBT (loss of Rs 22.88 crs/$3.3m vs loss of Rs 9.68 crs/$1.4m...

Store additions continue to be mainly focussed on Tier I and sale of higher value products set the theme for Q2FY20.