Founded in 2002, V-Mart Retail Limited is a value fashion pioneer focusing on tier 2/3/4 towns in India, with a network of 266 stores across 19 states and 191 towns. In Q4FY20, the company reported a revenue decline of 3% YoY to Rs 333 crores vs Rs 345 crores, a year ago.EBITDA improved by 126% to Rs 29 crores while they occured loss of Rs 8 crores as compared to Rs -0.9 crores on a YoY basis.

During FY20, V-Mart maintained its stable performance. Late onset of winters saw revenue growth of 29%, like to like (LTL) growth of 8% and EBITDA growth of 60% until 15th March, when the Covid-19 pandemic heightened, resulting into store closures and business disruption.

The store closures resulting from back-to-back lockdowns have adversely affected the business operations and led to a significant decline in revenues, which was otherwise growing at 29% over last year till mid- March. This impacted gross margins and EBITDA disproportionately, and a large part of the business expenses are fixed costs.

The Company was cash positive as of March 2020 and had sufficient working capital arrangements to meet its operational requirements on a sustained basis. V-Mart had a free cash flow of Rs 25 crores in its book for the full year ended 31st March 2020 with no debt obligation.

Robust Financial Performance:

In the last 5-years, V-Mart has reported a 100% increase in revenue to Rs 1,662 crores from Rs 809 crores in 2016. Profit also increased from Rs 28 crores to Rs 49 crores, a growth of ~80%. In terms of profitability, the company has managed to keep return on equity (RoE) above 10%. The margins have also increased from 7.7% in 2016 to 12.9% in 2020. All this while, the company has managed to stay debt-free.

Opening up of Stores:

Company is limping back to normalcy with reopening its stores. As on 29th May 2020, V-Mart had permission to re-open over 70% of its Stores, under the norms as prescribed by the Ministry of Home Affairs (MHA). Depending on the zoning, few re-opened stores have been allowed to serve customers only for essential goods while most others have been permitted to sell apparel also.

V-Mart is witnessing roughly 40% of normal footfalls in the opened stores for the relative operational hours. The company is likely to see a faster revival in operations than other large retailers as 30% of its stores are located in districts with zero Covid-19 cases. In terms of Same Stores Sales Growth (SSSG), V-Mart has reported a decline of 2% in Q4FY20 earnings of which the growth was 3% as on 15th March 2020. During FY20, the Sales per sq. feet (per month) was down by 6% to Rs 759.

A Penny Saved is a Penny Earned:

The COVID-19 has impacted the macroeconomic activity at large. With this, the company is focusing on cash conservation, cost reductions, discharging operational expenses, and -ensuring optimum availability of working capital. The management sees weak demand to continue even after lockdown relaxations due to the limited purchasing power of consumers.

The company is also mulling to expand into the FMCG offerings and increasing the width of the essentials product portfolio to cater to the new demand that has emerged. They are also evaluating swapping some of its historically bottom performing stores with new attractive locations which may become available in the current environment.

Competition is Always a Good Thing:

Coming to peer comparison, Large national players such as Trent, Reliance Trends, FBB, Pantaloons, Max, and Brand Factory have opened multiple stores in tier 2/3 cities. However, their targeted segment is different, as evident in their customer profile.

National players have much lower footfall/sq. ft. and conversions compared to regional players. However, their Average Selling Price (ASP) and bill size are nearly double, implying that they keep prices high to maintain profitability. In that sense, regional players like V-Mart face a limited reduction in sales as they have carved a niche for themselves with their value-centric offerings and low-cost operating structures.

V-Mart clearly enjoys an edge over regional value retailers in terms of customers, landlords and employees. It is a relatively well-known brand with deep penetration in the northern/eastern belts of India with more than 2-3 stores in most small cities and towns, unlike fragmented presence of peers. As a result, it has ~10% higher throughput than its regional peers.

Final Thoughts:

V-Mart has demonstrated consistent growth trajectory in the past, and growth momentum is expected to continue due to the under-penetration of value retailers in India’s hinterland and the company’s stronger competitive positioning. The company appears well placed to compete with regional and national players with its strategic business model and stands to benefit significantly once there is revival in the economy.

Thus, V-mart's aggressive store expansion strategy backed by a low cost business model and best in class execution capability to drive growth going forward.

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