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Braving the odds: Hardsell in small towns - V-Mart Retail

Bhavana Acharya | Updated on March 12, 2018 Published on July 12, 2015

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Indian companies stumbled through FY 15, with sharp deterioration in performance in the second half. While revenue for CNX 500 companies contracted by 2.9 per cent in the six months to March 2015, earnings fell 25 per cent. But there were some companies that proved their mettle by recording strong numbers in this period.

V-Mart Retail paints a good picture, with its revenue growing at a healthy clip. For the second half of the 2014-15 fiscal, growth came in at a good 23 per cent. The numbers of this small retailer are better than those of the larger Shoppers Stop or Trent.

For one, V-Mart is a departure from other listed retail companies in its concentration in the smaller Tier II and III cities (over 80 per cent of stores are located here), which are under-penetrated and have limited competition from organised retail.

E-commerce, the bane for most retailers, has not yet made significant inroads here either.

Two, V-Mart has also refrained from scaling up quickly or spreading itself too thin across geographies. Stores are focused in the north and north-eastern regions; such a localisation has helped it get a more accurate read of consumer preferences and behaviour, which vary widely across regions.

V-Mart’s same-store sales growth, a measure of how well stores perform on a sustainable basis, is at 6.5 per cent for 2014-15. While this is lower than the 11.5 per cent the year before, it is still better than peers’.

The growth has also been largely driven by volumes, indicating that it isn’t wholly dependent on price hikes to drive sales. Expansion has been kept at around 20 to 25 stores each year and debt levels are well under control.

Three, it has gradually shifted into fashion retail from food and groceries.

Fashion offers better margins and pricing; its share in revenues has moved to 91 per cent by FY-15 from the 80 per cent in FY-13. But owing to more discounts to clear inventory, operating profit margins dropped to 7.4 per cent for the second half of 2014-15 compared to the 9.1 per cent in the year ago period. Still, profit margins are better than those such as Shoppers Stop.

Net profit margin for 2014-15 is at 4.3 per cent, which is a low figure but retail inherently works on slim margins.

V-Mart Retail trades at a trailing 12-month price-earnings multiple of 23 times, far below peers such as Kewal Kiran, Trent, and Shoppers Stop. On a market cap-to-sales metric too, V-Mart is cheaper than peers.

Published on July 12, 2015
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