Despite posting a loss in the September quarter (Q2FY23), brokerages have remained bullish on V-Mart Retail (V-Mart).
V-Mart posted a net loss of ₹11.31 crore in the quarter ended September 2022, which narrowed as against ₹14.14 crore in the same quarter last year. Its sales, however, jumped 50 percent to ₹506.16 crore in the quarter under review from ₹337.97 crore last year.
Brokerage houses Motilal Oswal (MOSL) and Axis Securities, both have buy calls on the stock.
MOSL, however, has reduced its target price of the stock to ₹3,950, implying a potential upside of 42 percent. On the other hand, Axis has a target of ₹3,500 for the stock, indicating a potential upside of 26 percent.
MOSL noted that V-Mart delivered a healthy 2QFY23 performance, despite a weak market environment. Improved revenue productivity and margin drove revenue growth of 50 percent backed by higher prices and tailwinds from the growth in South India. Net loss also narrowed to ₹11 crore.
It pointed out that South India constitutes 20 percent of the sales mix, aiding growth and margin, however, pain in East India persists. With a cut in the average selling price, the festive and upcoming winter season can usher a revival in demand, it added.
Axis, on the other hand, stated that long-term growth levers remain intact for the stock.
"V-Mart Q2FY23 Sales and EBITDA were ahead of our estimates. Revenue stood at ₹506 crore, up 50 percent YoY (61 percent growth over pre-Covid levels). The company posted an EBITDA of ₹54 crore while EBITDA margins inched up by 450 bps YoY to 10.6 percent in Q2FY23. The company posted a negative Net Profit of ₹11 crore as demand in Tier 2/3 cities remained impacted owing to inflationary pressures. For H1FY22, revenue stood at ₹1,666 crore, implying a 55 percent YoY growth while EBITDA/PAT stood at ₹204 crore/11 crore," informed the brokerage.
It further stated that the inventory levels remained healthy despite the up-stocking for the festive season with comfortable liquidity and cash position. V-Mart opened 16 new stores in Q2 including 2 stores in the South taking the total store count to 405 (326 V-Mart stores and 79 Unlimited stores) in Sep’22, it added. V-Mart aims to cross-populate selective stocks from South to North, and vice versa to add more variety and better options for consumers of both geographies, noted Axis.
"In the medium to long term, given the huge growth opportunity in the Value Fashion segment and VMART’s strong execution capability, it has the potential to sustainably garner double-digit revenue growth for a prolonged period, backed by SSSG (same-store sales growth) and new store additions. It has a strong competitive position, given its low price points, cost leadership, strong liquidity, and prudent inventory management," MOSL said.
Axis, meanwhile, expects value retailers such as V-Mart to gain a boost from H2FY23 onwards in line with premium retailers on account of normal monsoon, higher MSP, increase wages, and a greater shift from unorganized to organized players in smaller towns.
"The company intends to continue its healthy growth trajectory in 1) The backdrop of increased demand driven by the resumption of economic activity, 2) The market share shifting from the unorganized to organized sector, 3) The company’s focus on the newly formed south zone through Unlimited stores to cross-populate selective stocks from South to North, and vice versa to add more variety and better options for consumers of both geographies. Moreover, it would also ensure people and product continuity while improving merchandise assortment, pricing, and integration of systems and processes, and 4) appointing a consultant to revamp sourcing and scaling opportunities," it explained.
MOSL has revised up the FY23/FY24 EBITDA estimates by 12 percent/4 percent, building in a revenue/EBITDA CAGR of 37 percent/49 percent over FY22-24, backed by a recovery in demand and strong store additions.
"The pain in rural India, coupled with a slow onset of the winter season and abrupt rainfall (which resulted in crop damage), will persist over the next few quarters. We have factored in a revenue/EBITDA CAGR of 37 percent/49 percent over FY22-24. The turnaround in the rural business, with price corrections, will be key. We maintain our Buy rating," said MOSL.
Stock price trend
The stock has fallen nearly 30 percent in the last 1 year and 26 percent in 2022 YTD.
It has lost over 33 percent from its 52-week high of ₹4,156.95, hit in January 2022. Meanwhile, from its 52-week low of ₹2,406, hit in June 2022, the stock has managed to gain 15 percent in 5 months.
Just in November, the scrip has fallen 9 percent after a 7 percent rise in October. In the 11 months of 2022, it has given positive returns in 6 months and negative in the remaining 5. It has rallied the most in March and July, up 16 percent and 11 percent, respectively. Meanwhile, it has shed the most in June, down 24 percent followed by in April, down 19 percent.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.