V-Mart Retail Ltd - Muted Set of Numbers; Q3FY15 Holds The Key; Result Update Q2FY15 :: Edelweiss PDF link

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V-Mart Retail Ltd. (VMart) has reported muted set of numbers for Q2FY15. Although revenues grew by 18% YoY, EBITDA saw a decline of 32% on the back of increased fixed costs. PAT jumped by 34% to INR 4 cr. Delayed monsoon rains in northern states (where VMart has a sizeable presence; UP and Bihar account for 64% of total stores) impacted consumer sentiment adversely while higher fixed costs as a result of new store openings led to pressure on the margins.  VMart’s strong revenue visibility, RoE in excess of 20% (supported by focus on profitability), better working capital management and stable debt-equity ratio are positives for the stock. We believe that VMart can sustain CAGR of 38% in revenue and 42% in PAT over FY14-FY16E.

Revenue growth at 18%; Delayed monsoon adversely affects revenues

VMart recorded a decent 18% expansion in Q2FY15 top line at INR 145 cr. Although, Average Selling Price saw an increase of 7% YoY; Same Store Sales and Volume growth stood at a meager 1% and 0.5% respectively. Revenues were adversely impacted by delayed monsoon in key regions of UP and Bihar (these two states together constitute 64% of total VMart stores). Delayed monsoon affected consumer sentiment across states, leading to a poor demand at VMart stores. Also, loss of revenue was observed due to relocation of the store in Bhopal whereas floods hit sales at the store in Jammu & Kashmir. With the festive-cum-marriage season due in the next quarter, Q3FY15 will hold the key to achieving the company’s FY15 targets.

EBITDA growth muted; PAT growth stood at 34.7%

Growth in revenue was truncated due to de-growth of 32% at EBITDA level. The EBITDA declined, as  revenues were not enough to meet fixed costs associated with the opening of new stores. Employee costs also witnessed a 27bps hike due to increase in minimum wages. As most of the employees are front-end facing (90% of total employee strength), any increase in minimum wages adversely impacts overall costs. VMart also accounted for the inventory loss of INR 1.08 cr in the Srinagar store (J&K) due to floods in the valley. This loss was shown as an Extra-Ordinary item. Shrinkage for the quarter was reported at 0.88%. Q2FY15 PAT grew by 34.7% to INR 4 cr.

VMart’s expansion plans intact

VMart’s store strength at the end of Q2FY15 stands at 98. Q2FY15 saw opening of five stores - two in UP, two in Jharkhand and one in Bihar. VMart had guided for the opening of 25 stores in FY15. The management has reaffirmed its plan to meet the target of 25 store openings for the full year. In comparison, VMart saw no store closures in this quarter. The total retail space reported as at the end of Q2FY15 was 7.93 Lac sq.ft. The company has guided for 4-5 store openings in Q3FY15E. As on date, VMart’s store strength stood at 102 with a total retail space of 8.29 Lac sq.ft.

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