The company has a highly efficient cost structure and working capital position compared to regional players, as reflected in its higher sales throughput, EBITDA margin profile and cash conversion ratio.

The threat from large national players is limited in that they cater to a different segment with a different customer profile, product variety and price range. Average selling price (ASP) and bill size at large national players is almost double, which limits the risk of customer uptrading.

Several regional players are closing down stores as their aggressive debt-funded expansion and high working capital led to huge write-down, making such stores unviable. V-Mart has maintained tight working capital and a well-capitalized balance sheet. Over the last five years, it has funded store expansion through its internal accruals and thus remained well capitalized in a bad market. This has allowed the company to gain market share and further negotiate payments with its landlords/other vendors to contain costs.

After languishing for the last 12 months due to weak earnings, the stock has bounced back recently on the back of healthy earnings growth in 3QFY20. Its improving prospects will help garner better valuation.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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