BoB Capital Suggests Buy This Small Cap Retail Stock For 45% Potential Gains, Stock Near 52 Week Low

BoB Capital Markets is bullish on the V-Mart Retail Ltd and suggests buying for a whopping 45% potential upside. The brokerage has given a target price of Rs 3,620/share. V-Mart Retail has the majority of stores in UP and Bihar and contributes 65-70% of the top line. Due to disruptions in UP and Bihar, the sale is expected to be adversely impacted in Q1FY23.

Stock Overview

Tuesday, 21 June 2022, the shares of the V-Mart Retail Ltd closed at Rs 2,490.90/share. Its 52-week low is Rs 2,430/share, recorded today. While the 52-week high is Rs 4,848.80/share. As mentioned, the shares hit the 52-week low today. The TTM PE ratio is 422.90. The P/B ratio is 6.02. ROE is 1.37%. The market capitalisation is Rs 4,923 crore.

The share price has fallen in the last 1 year. In the last 1 month, its share price declined nearly 19.27%, in 3 months it declined 35.45%, and in the last 1 year, it has fallen nearly 12.75%. Considering the 1-year result, it seems the stocks ha snot been a good buy for short-term ROI, However, it has given positive returns on long-term investment, particular on 3 and 5 years of investment. In 3 year years, its share price moved up by 8.31% and in 5 years it gave a massive positive return of 114.95%.

Potential Gains - According to the estimated target price and the CMP of the stock, the shares of the company as the potential to gain nearly 45% in near future.

Q1FY23 sales to slow down

UP and Bihar has the largest concentration of stores (~47%) and contributes 65-70% of the top line. As per management, during Q1, these two states have been witnessing major unrest and communal disputes which have resulted into sale loss. However, UP is facing partial disturbance due to strong BJP government. But Bihar is witnessing a major unrest, which has forced 80% of the stores to get impacted about 60% of the time.

55-60 store addition targets on track

V-Mart plans to add 55-60 stores in total in FY23, of which 20% will be Unlimited stores in South and 80% will be V-Mart spread across 5 zones namely North, UP, Bihar, East and South. The company will have major store concentration in Andhra and Telangana in South apart from UP & Bihar. The capex per store will be about Rs 13-14mn, totaling Rs 800-850mn. The capex will be largely funded through internal accruals.

~20% price hikes in Q1

Due to an increase in cotton prices, V-Mart has taken a ~20% cumulative price hike in Q1 and has passed on every cost inflation to the consumers. The significant rise in yarn prices would pose a further challenge in keeping MRPs competitive, which will adversely impact volumes. Further, the consumer spending on fashionwear has overall taken a hit due to rising interest rate, which is a significant part of overall business.

Near-term headwinds to persist, Suggests buy for target price of Rs 3,620/share

"Due to a combination of the rising competition from national conglomerates in tier-2/3 cities, muted near-term demand outlook in smaller towns as overall inflation rises, UP & Bihar witnessing major dip in sales owing to disruptions and VMART's price hikes, we cut FY23/FY24 EBITDA estimates by 7%/9%, respectively. Further, due to operating leverage and higher depreciation cost, our PAT cut is steeper at 32%/23%. We continue to value VMART at 21x FY24E EV/EBITDA, versus its 5Y median of 24x, which translates to a revised Target Price of Rs 3,620 (vs. Rs 3,950). Retain BUY," the brokerage has said.

Company Overview- V-Mart Retail Ltd

V-Mart Retail Ltd is a complete family fashion store that provides its customers true value for their money. V-Mart retails readymade garments accessories etc. and is engaged in the business of 'Value Retailing' through the chain of stores situated at various cities in India. The company operates its retail stores under the V-Mart brand. V-Mart is one of the pioneers in setting up stores across various small Indian towns and cities including Sultanpur Ujjain Motihari. The company primarily operates in Tier-II and Tier-III cities with a chain of 'value retail' departmental stores offering apparel and general merchandise and Kirana catering to the entire family. The company has 368 stores across 235 cities in 26 states and union territories in north, west, east and south India, with a total retail area of 3.2 Million sq. ft (3234978 sq. Ft.).

Disclaimer

The stock has been picked from the brokerage report of BoB Capital Markets Ltd. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.