Pick of the Week: V-Mart Retail Target Rs 4180, Duration: 6-9 Months; A Hot Buy?

Tier II and III cities are the primary focus of the omni-retail business V-Mart. V-Mart has stores all throughout India, with an average size of 8,000 square feet. Approximately half of its stores are located in three states: Uttar Pradesh, Bihar, and Jharkhand. It operates under the tenet of "value retailing." V-Mart is accessible on all other major marketplaces and provides customer service via its direct-to-consumer (D2C) omni-channel platform. V-Mart has 467 locations as of September 24. The shares of V-Mart Retail were trading at about Rs 3793 on Monday, but the broking firm Axis Securities chose V-Mart Retail as its pick of the week because it believes there might be a 10% increase in value to a target price of Rs 4180 in 6 to 9 months.

Why Buy The Shares of V-Mart Retail?

Here is the investment rationale behind the buy call of V-Mart Retail according to Preeyam Himanshu Tolia (Research Analyst) and Suhanee Shome (Research Associate) at Axis Securities.

Performance likely to revive going forward: Despite a challenging environment marked by heavy rainfall, inflationary pressure, and seasonal fluctuations, the management highlighted that the consumption trends in the core markets will start picking up, particularly in T3/T4 town led by strong festive/wedding season and the government's impetus on rural development/infra spending. V-Mart reported revenue of Rs 661 Cr in Q2FY25, up 20.3% YoY, with an impressive 15% YoY growth in SSSG, alongside a notable 54% YoY increase in footfall. Considering this, we expect value retailers like V-Mart to report healthy performance going forward in H2FY25, driven by the continued increase in footfalls, increased government spending in rural areas, a strong festive season, and better offerings at affordable prices.

Reduction in Limeroad losses: In Nov'22, V-Mart acquired LimeRoad, which initially put pressure on its balance sheet. Since then, the company has been working to reduce LimeRoad's losses. In Q2FY25, LimeRoad losses reduced by 63% YoY. Moreover, V-Mart aims to achieve breakeven for LimeRoad in FY25, which is likely to drive margins for the company in the coming quarters.

New store additions remain intact: V-Mart continues to be on track with 50-60 new stores, focusing on DD SSSG, while optimizing performance through closures and refurbishments.

Redefining affordable fast-tracking fashion for Gen-Z: V-Mart's revamped design team and strategy shifts are driving trendy, affordable styles, fueling growth and productivity gains.

V-Mart Retail Outlook

"Value players such as V-Mart are expected to see earnings and profitability improvement as rural areas and small towns recover and outpace the metros. This recovery, coupled with market share gains from smaller and unorganized players, is expected to drive their performance. We recommend a BUY rating on the stock with a near-term TP of Rs 4,180/share, implying an upside of 10% from the CMP," said the research analysts of Axis Securities in a note.

V-Mart Retail Financials

For the September quarter, V-Mart Retail Ltd. reported a drop in its net loss to Rs 57.99 crore. According to a regulatory filing from V-Mart, the business reported a net loss of Rs 86.42 crore for the July-September quarter of the previous fiscal year. In Q2FY25, its revenue from operations increased by 20.3% to Rs 660.97 crore from Rs 549.43 crore in Q2FY24. In the September quarter, V-Mart's overall expenses increased by 13% to Rs 720.73 crore. In the September quarter, V-Mart's overall income increased by 20.18% to Rs 662.74 crore. For the quarter, the company's EBITDA climbed to Rs 39 crore. The inventory was worth Rs 912 crores, and same-store sales (SSSG) jumped by 15% YoY.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.